Healthy Markets and Bad News for Turkeys, Market Comment – by Terry Gardner – YouTube Video & Transcript

In this pre-Thanksgiving video, Terry Gardner discusses the stock market rotation, the movement higher in earnings estimates, and bad news for turkeys!

https://youtu.be/N2LeNkh9WL0

Video Transcript

Terry Gardner, Jr.:

Morning, everyone. It’s Terry Gardner from C.J. Lawrence on Wednesday, November 25th, day before Thanksgiving. With two college kids, two middle schoolers, two dogs, and a wife in the house stuff thought maybe we’d get outside today. This is the Great South Bay along the South shore of Long Island. This area, when I was going, growing up was filled with clammers. The boats would be out here first thing in the morning. This bay is known for hard shell clams, and oysters, and scallops, and muscles, although pollution has taken a lot of that trade away over the years. But there’s some oyster farming coming back here on the island on the far side of the bay. In fact, a number of my friends have farms over there. Those farms serve to filter the bay and clean it up, and also are a great commercial enterprise for those that own those concessions.

Terry Gardner, Jr.:

So, that’s the backdrop for today. Thought we’d cover three things today. First is, there’s going to be a lot of unhappy turkeys because the price of turkey is dropping. And I’ll get back to that point towards the end of my video. So, you got to stay tuned. Secondly, money is not necessarily coming into the market. It’s rotating. We want to make a comment about that. And then thirdly, earnings estimates actually are on the rise. And, as we get closer to year end 2020, we’re going to start looking out towards 2022 earnings estimates. So, it’s worth taking a look at where those are headed now.

Terry Gardner, Jr.:

So, first off, there’s this notion in the market that there’s money flows into stocks. And, in fact, when we look at some data, we don’t actually see that that’s true. We like to look at data that’s provided by the Investment Company Institute, which measures net inflows and outflows into mutual funds and exchange traded funds. And what that data has been telling us for the past three years is that there’s been a massive shift out of stock funds and into bond funds. And, in fact, that trend actually strengthened in 2020.

Terry Gardner, Jr.:

Now, in the last week or two, that data looks like it may have flipped a bit. But, just in terms of magnitude, over the last three years, we’ve seen about half a trillion dollars of outflows out of stock funds. If the numbers are correct for the first couple of weeks of November, we may have seen a 22 billion of inflow. So, in a magnitude basis, the influence of that inflow really shouldn’t impact stock prices. So, the point is, money is not necessarily coming into the market, but it is moving around. And you see that with the sell off of some groups and the rise of other groups that have not participated in the rally year to date.

Terry Gardner, Jr.:

Here’s some stats to kind of bear that out. First off, if you look at year to date performance of S&P sectors, of course the big names are at the top. Right? So, technology, consumer discretionary, and communication services all lead for the year in terms of price performance. And the laggards, as you would expect, are real estate, financials, and energy, kind of the value in early cyclical type groups.

Terry Gardner, Jr.:

Month to date the last 30, it’s a different story. Month to date the best performers are energy, financials, and industrials. And the worst performers have been technology, healthcare, and consumer discretionary. So, money seems to be sloshing around inside the market. And I wouldn’t be surprised to see if, after that trade kind of finds its way to an end, that we see a reflation in some of those original winners. So, we’ll keep an eye on that.

Terry Gardner, Jr.:

Secondly, with regard to the progression of earnings, earnings have been ticking up, albeit in small increments, week to week, month to month, since may, when we kind of started to find the bottom of earnings estimates and GDP forecast. 2021 estimates have risen 3%. For 2022 estimates, which are now getting input by analyst, strategist, others, those estimates have been rising as well. And they’re going up 6% from May of this year. The market is up ten. So, we have seen some increase in the PE multiple on the market. But, with the 10 year treasury at about 0.88 basis points this morning and inflation is still below 2%, we don’t think that’s necessarily where we [inaudible 00:04:14] this point.

Terry Gardner, Jr.:

So, speaking of inflation, our favorite discussion this time of year is the turkey dinner. And every year the American Farm Bureau puts out a study. My friends are very happy back here honking because it’s not them. But the price of turkey has dropped dramatically. And, in fact, producers are trying to push out more volume at lower prices. So, if you’re a Turkey, you’re not in a good position this year and probably next year.

Terry Gardner, Jr.:

The point of the American Farm Bureau study is that the cost of the traditional Thanksgiving dinner for your average family, which includes a 16 pound Turkey, declined 4% from last year. So, if you caught our video from my colleague Bernhard Koepp called last week, he talked a lot about inflation and what he sees on the horizon with regard to the pushes and pulls of inflation. Well, the turkey dinner is one area that we don’t have to worry about because the traditional cost of the dinner is dropping. In fact, the bird itself, for a 16 pound bird, is down about 7% from last year. These are the lowest figures since 2010. So, that the meal, in terms of its cost, is declining. So, have an extra piece of turkey and some stuffing, because it’s not going to cost you any more.

Terry Gardner, Jr.:

So, with that, we’ll wrap it up. If you’re viewing this before Thanksgiving, hope you have a great Thanksgiving. And, if you’re viewing this afterwards, I hope you had a great Thanksgiving as you’re heading into the holidays. If you have got any questions about this or the Great South Bay, you might see the lighthouse blink in the background once or twice, give me a ring here at C.J. Lawrence. It’s Terry Gardner, (212) 888-6403, or shoot me an email at tgardner@cjlawrence.com. Have a great day, everyone.