It would be easy to overlook that markets have stayed in a fairly thin band since breaking out to new highs in early July. Indeed, it has been over a month of trading days since the S&P 500 has seen a 1% move on a closing basis.

To give some perspective, if you dozed off on 7/18/16 and woke up right now, 6 weeks later, you would find the SPY had moved a grand total of 82 cents – on a $217.24 cents base – or roughly 37 basis points.

The news cycle has been active indeed. Brexit has come and gone (with implications still to be seen), Zika is running its course now, chatter about China is sure to rebirth after summer and now, elections will be front and center as we burn off the last three months of that process.


This new crop of monsters has been birthed and cycled across the stage of our minds under always glaring media attention. That has caused many to miss a few facts which are quite positive for all of us. We covered many below for you.

The net effect? Once again, we find ourselves steadily working through and around problems. Keep in mind – in the grander scheme of things – if our problems stop occurring, so to does our forward movement and accomplishments.

Think about it.

As much as many fret continuously over problems, mayhem, setbacks, roadblocks and other perceived failures, we miss the notion that many of these are perspectives built around a 90-day earnings cycle created by analysts on Wall Street. Imagine for a moment that we went to a 6-month earnings cycle. In essence, we created our own monster – and now we must feed it.

I digress…

Good Stuff Missed

Meanwhile, the chatter of our earnings recession has been covered for too many quarters now. Almost right on time, improvement is sprouting on the horizon. Let’s share some stats (with a couple charts to follow).

Revisions for Q2’s National Income & Product Accounts (NIPA) were released on Friday. They included revisions for GDP, which weren’t significant and were highlighted for you in yesterday’s note.

The Net Effect?

A vast – and I mean vast – majority of the data, no matter how one slices it, brings one to the same result:

The epicenter of the recent profits recession was clearly the US oil patch. Yes, there were some parallel industy impacts but those were mild overall. The remainder of the economy was merely suffering a slower pace of growth – not an actual drop in growth. This is an important element which is too easy to overlook.

The bottom-line story is that while the doomsday crowd worked very hard to concoct the vision of a broad profits recession in the data since mid-2014, these notes have been very clear since: it was a profits recession rolling mostly through the energy sector.

Last but not least: Forward earnings and revenues are now both at new, all-time highs looking into 2017 and beyond. Dips, corrections, swoons, setbacks and panics are all your friend for those focused on long-term value over time.

The Barbell Economy will continue to be your key foundation for steady growth given coming demand in the pipeline. Let’s take a look:

The first chart above shows you the important NIPA summary data and the other two help one see that the earnings ebb driven mostly by energy. It is now being overcome in forward data. This data comes straight from Thomson Reuters – and importantly – tells us the same from the S&P 400 and 600 as well. Small, mid and large cap sectors seem to be almost completely beyond their heaviest headwinds brought on by cheaper oil.

In Closing

I read a piece yesterday from Josh Brown which caused me to laugh so hard, I had to include a few points from his note for you today.

Long-time readers know that these very same issues have been comically noted here for you before but his list was all inclusive and reads well – enjoy:

Consider the following insane things that are believe on Wall Street, which make no sense whatsoever in the real world:

  1. Falling gas and home heating prices are a bad thing
  2. Layoffs are great news, the more the better
  3. Billionaires from Greenwich, CT can understand the customers of JC Penney, Olive Garden, K-Mart and Sears
  4. A company is plagued by the fact that it holds over $100 billion in cash
  5. Some companies have to earn a specific profit – to the penny – every quarter but others shouldn’t dare even think about profits
  6. Wars, weather, fashion trends and elections can be reliably predicted.
  7. It’s reasonable for the value of a business to fluctuate by 5 to 10 percent within every eight hour period
  8. It’s possible to guess the amount of people who will get or lose a job each month in a nation of 300 million
  9. The person who leads a company is worth 400 times more than the average person who works there
  10. A company selling 10 million cars a year is worth $50 billion, but another company selling 40,000 cars a year is worth $30 billion because its growing faster

You know you want to laugh.

Away from Wall Street, no one believes in any of this stuff. It’s inconceivable. On Wall Street, these are core tenets of the collective philosophy being read to the masses on the news.

If you are already off for Labor Day as we close up the summer of 2016 – travel safe and enjoy family and friends.

Until we see you again, may your journey be grand and your legacy significant.