Brian Gilmartin runs the always informative Fundamentalis blog and manages money as the founder of Trinity Asset Management. Brian’s a maven when it comes to S&P 500 earnings expectations and the factors that drive revisions in one direction or the other. Here he looks at the four most noticeable characteristics of the bull market which began in 2009…
1.) Short, sharp, corrections, usually 5% – 7% in severity. The last big correction bottomed last October ’14 and it was roughly 7.7% peak-to-trough, and it seemed pretty nasty. The last 20% SP 500 correction was 2011’s recession scare (so many thought the decline was due to the potential ratings downgrade of the USA’s AAA credit rating, but I suspect it was due more to the ECRI recession call, quickly debunked by Jeff Miller (A Dash of Insight blogger) and Doug Short), that occurred in the summer of 2011.
2.) Stock market bullishness evaporates quickly and becomes rampant bearishness, as judged by American Association of Individual Investors (AAII) data, and the Bespoke Market Poll Results. Bespoke noted in last week’s (week of 3/27) Weekly Letter that even with a spike in bullishness last week, the AAII bullish sentiment level remained below the bull market average of 38.8%, coming in at 38.4%.
3.) Although somewhat unrelated to the SP 500, there has been a persistent level of bearishness around Treasury yields and prices since 2009 – 2010, with a constant cacophony of voices expecting higher interest rates. 2013 saw some relief for those in cash or short Treasuries, but how many (me included) were leaning the wrong way in 2014 when the 10-year Treasury yield rallied from 3% to 2% ?
4.) Finally, and the characteristic I am the closest to given the weekly blog work, is that Street and financial media expectations every quarter entering earnings season are typically downright depressing, (note last October ’14) and yet actual SP 500 earnings growth each quarter has been at least mid-to-high-single-digits each quarter, i.e. Q4 ’14’s +9% ex-Energy, despite the roundly pessimistic outlooks. Let’s face it, there have been many doubters around earnings for the last few years, and it has been consistent every quarter, with the latest meme being earnings growth is mostly due to large stock repurchase plans in Corporate America, which Urban Carmel, a thoughtful and popular blogger the last few years, has somewhat debunked.
Well done, Brian!