The S&P 500 closed last Friday at 3,841.47 and closed at 3,714.24 this afternoon. This was the worst weekly performance since October’s pre-election jitters. It was certainly a wild week on the street. All and all though, when we look at the data and earnings, we are still convinced of our base case; stocks will consolidate in a mid-bull market correction down to around the 3,500 level for the S&P before resuming their upward trend and finishing the year significantly higher than current levels. Of the 154 companies that have reported so far 82% are beating earnings estimates by a median of 13%. On the top line, 78% are beating by an average of 9%. We’re going into the new year with a fresh rise in household income and savings.

Do we think anything that happened this week suggests a watershed moment marking the beginning of a bear-market? Certainly not. We find elevated retail participation to be generally a good thing. More buyers and sellers ultimately should mean better markets. One thing that we think is incredibly important is to listen to markets and the very definitive language they speak in: price. Shouting at the market can end up being a rather expensive habit; best to stick to slogging it out on the links.

We want you to remember something very crucial; the moment you think you have markets nailed is probably when you’re about to lose money. Mr. Market is fickle, he always has been and likely always will be. Markets are messy and they can provoke rage, joy and nearly everything in between. Despite all our collective team has experienced over the years, from crises and bull markets to new regulatory frameworks and founding new companies, we find the most important guiding principle is consistent analytical discipline.

Check out a quote from the first title ever written about stock markets. It is aptly called The Confusion of Confusions and was published in 1688. The setup is a philosopher asks the shareholder to explain to him this new trend he has heard of; stocks. This is how the shareholder responds in a way that’s simultaneously meant to be funny while also accurately describing the, at the time, new innovation of markets to a layman. This is how De La Vega’s shareholder responds:

I really must say that you are an ignorant person, friend Greybeard, if you know nothing of this enigmatic business [stocks] which is at once the fairest and most deceitful in Europe, the noblest and most infamous in the world, the finest and the most vulgar on earth. It is the quintessence of academic learning and a paragon of fraudulence; it is a touchstone for the intelligent and a tombstone for the audacious, a treasury of usefulness and a source of disaster, and finally a counterpart of Sisyphus who never rests as also of Ixion who is chained to a wheel that turns perpetually.

Confusion of Confusions, Joseph de le Vega, 1688

We also want you to remember that when you feel like you have a monopoly on being confused about stocks, that people have been confounded by markets since their inception. Joking aside, there is a perennial element of truth in this quote. If stocks are making you feel confused this week, or any week for that matter just know that you are not alone. We think an anchored analytical approach grounded in the data is a better and more consistent way of getting returns than any other.

Markets are always evolving. In the 1970s, there was a shortened trading week due to a ‘Paper Crunch’, meaning there was literally too big of a backlog of paper orders. Back then, people speculated whether Wall Street would be able to continue growing.

One of our major strategic themes in our ‘Granny Shots’ portfolio, which was rebalanced this week, is the rise of the Millennial generation to their economic peak. This process has clearly begun, but it is also only in its early stages. Will there be some bumps along the road, inefficiencies, and mistakes at the hands of novice investors? Sure, there will be, but the shift of markets being comprised of a new generation inevitably happens with time and there are some compelling reasons to think that the economic ascent of the most educated, and now largest generation on Earth will be majorly positive for the equity asset class as a whole and the valuation of major indexes. We are big fans of the stock market.

We are also big fans of retail investors which is exactly why we started FSInsight. We have a unique product-structure and groups of stock lists that are produced for self-directed investors. We like to focus on explaining why stocks will be beneficiaries of major economic forces and educating our readers to think about markets like those who study them for a living do.

We also think that there are more reasons to be excited and optimistic about the future of stocks than there has been in a long-time. My colleague will discuss why he thinks the decade-long trend of capital favoring bonds over equities could be coming to an end.

S&P Loses 2% On Week But Data and Earnings Largely Positive
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