“Equities are a claim on uncertain future earnings.” — Peter Bernstein, who evangelized the efficient-market hypothesis.
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Good morning!
President Trump wants publicly traded companies to do away with an over 50-year mandatory requirement of reporting quarterly earnings and disclose results semi-annually instead.
If the SEC is game for this, this would require investors to significantly rewire their thinking about the premise upon which U.S. financial capital markets have built their dominance.
The hallmarks of U.S. markets—liquidity, competitiveness, transparency, and efficiency—are there because corporations and their executives regularly partake in reporting quarterly earnings. This gives market participants the confidence to carry out trades and declare views.
But the president believes moving to twice a year reporting will save corporations money and allow them to focus on the long-term picture.
I am a bit skeptical that going from four to two reporting periods in a year will help companies pay all that much attention to the longer-term picture.
In fact, I’d even argue that investors are already pretty receptive to earnings that they expect to be generated many, many years in the future. Just look at the expanding multiples for AI-focused companies and records for the stock market, even though many of these companies haven’t really figured out how to make money from AI in any significant way.
But there’s some support for this, including from Fundstrat Head of Research Tom Lee, who said that businesses don’t operate on a 90-day cycle and quarterly reports are why so many companies are staying private for longer.
The idea is that investors miss out on true alpha-generation opportunities if companies stay private for longer.
Whether intentionally or not, moving away from a quarterly reporting framework would further blur the lines between public and private investments after the president backed investors’ ability to own private assets in retirement accounts earlier this year. A handful of brokerages are working on or already offering individual investors the ability to buy private shares.
In short, we’re moving toward a different era for financial markets, one that the president has been advocating for a while. He was trying to move the needle toward fewer earnings reports during his first term, too.
Back in those days, JPMorgan Chase’s Jamie Dimon and Berkshire Hathaway’s Warren Buffet expressed support for enabling companies to move away from providing quarterly earnings-per-share guidance, though to be very clear, this is not at all the same as completely doing away with two reporting periods of the year.
Dimon and Buffett argued that companies with a longer view were discouraged from going public. And the pressure to announce good earnings results in the short-term to appease shareholders was harming the longer-term potential of a company and subsequently the U.S. economy, they wrote in a 2018 op-ed published in the Wall Street Journal.
In his recent post, the president re-upped those concerns by drawing reference to China.
“Did you ever hear the statement that, ‘China has a 50 to 100 year view on management of a company, whereas we run our companies on a quarterly basis???’ Not good!!” he wrote in a social media post.
Why would we want U.S. businesses to emulate the 50-100 year model like the Chinese do? The Chinese government barely reports economic data as it is. The Shanghai Composite index has lagged the S&P 500 over the past two decades, and based on their nascent efforts to improve their own companies’ transparency, the Chinese seem to think that we’re doing something right.
And while companies in Europe and the U.K. have also not been required to report quarterly earnings in over a decade, they’re not exactly disrupting industries with their cool tech.
It’s been long established as common sense that timely transparency helps make for efficient markets, which in turn help with price discovery. I’m not sure what a world with fewer reporting requirements looks like.
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If you’re a business owner, how do you approach balancing the short-and long-term picture? Click here to send us your response.
📧✍️Here’s what a reader commented📧✍️
Question: What has your experience (or the experience of someone you know) with the job market been this year?
Answer: Major money center banks are laying off quietly. The previous entry level analyst positions are now gone thanks to major set ups in India. These analyst jobs used to be a very important stepping stone for most finance and accounting graduates. Middle level managers that seemed to serve little purpose are also getting slashed with no mention of it in the news.
Catch up with FS Insight
We discuss how post-FOMC, the boost in liquidity and the resulting move off “sidelines” are the biggest factors for stocks into YE. Also, today President Trump proposed moving to reporting results every 6 months, and to me, this is better alignment of reporting vs operational priorities.
Technical
Given how stretched SPX has become lately, I feel that any daily close under the 5-day rising moving average (SPX-6566) likely could coincide with 3-5 days of weakness.
Crypto
Hyperliquid gaining “major” status: Strong user growth, $1.3B in annualized buybacks, and an 11% token holder yield position HYPE as this cycle’s leading candidate for the next “major.”
News We’re Following
Breaking News
- Appeals Court Rejects Trump Request to Remove Fed Governor Lisa Cook WSJ
- Senate Confirms Stephen Miran as Fed Governor NYT
Markets and economy
- What Investors Get Out of Quarterly Earnings WSJ
- Which Stocks Would Benefit From Fed Rate Cuts? Watch the 2-Year Yield. BR
- Credit scores drop at fastest pace since the Great Recession CNN
- Fund managers are ramping up on stocks — and finding them overvalued MW
- The best-performing Dow stock this year isn’t Nvidia. How this bank rose to the top. MW
Business
- The New Pitfall of Online Shopping: A Surprise Tariff Bill WSJ
- Tesla Stock Pops Again. This Shows It’s Overbought. BR
- Novo Nordisk flags drug trial promise amid hunt for next weight-loss blockbuster CNBC
- Beijing says TikTok’s US app will use Chinese algorithm FT
Politics
- Donald Trump tilts balance of power from investors to CEOs FT
Overseas
- Israel Launches Ground Offensive in Gaza City NYT
Of Interest
- Trump sues The New York Times for $15 billion, alleging defamation and libel CNBC
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| Date | Time | Description | Estimate | Last |
|---|---|---|---|---|
| 9/16 | 10:00 AM | Sep Homebuilder Sentiment | 33 | 32 |
| 9/17 | 2:00 PM | Sep 17 FOMC Decision | 4.25 | 4.5 |
| 9/18 | 4:00 PM | Jul Net TIC Flows | n/a | 77.822 |