2Q Earnings Look Great, No Need to Try to Time the Market, Terry Gardner, CJL Market Comment 8.04.21 – YouTube Video & Transcript

In this video, C.J. Lawrence Portfolio Strategist, Terry Gardner, discusses the strong 1Q21 results being delivered by In this video, Terry Gardner analyzes S&P 500 2Q21 financial results, examines cross currents for the stock market and economy in 2022, discusses the balance between secular and cyclical investment opportunities, and makes the case that there is no bad time for a long term investor to invest.

https://youtu.be/xpcAHBIteko

Video Transcript

Terry Gardner, Jr.:

Hi, good afternoon, everyone. It’s Terry Gardner from C.J. Lawrence. It’s Wednesday, August 4th, coming to you from Midtown Manhattan, New York City, our CJ Lawrence headquarters here. We’ve got a brief market commentary today, and we want to cover four points. The first being that we’re at the tail end of second quarter 2021 earning season and we want to take stock on how results are coming in for S&P 500 constituents.

Terry Gardner, Jr.:

Secondly, as we look out to 2022, we can see some cross-currents for both the market and for the economy and we want to discuss those. Thirdly, we want to discuss secular, versus cyclical investing opportunities. And finally, we want to make the point as to why long-term investors don’t need to try to time the stock market.

Terry Gardner, Jr.:

So first off, with regard to financial results for the second quarter, the net-net is they’ve been coming in very strong. Let me give you a couple of figures. So first off with about 75% of the S&P 500 constituents having reported, 86.3% have posted positive surprises. Results in excess of analyst expectations. That’s a 20 year high. So it’s very impressive. So not all the earnings have recovered from last year’s pandemic impact in quarter, but they’re coming in well ahead of expectations. Leading the pack from a sector perspective, healthcare at 98% of companies that are reported in the healthcare sector have reported positive surprises. 96% for technology companies, followed by 95% for communication services. So clearly a growth bent to estimate outperformance for the second quarter so far.

Terry Gardner, Jr.:

At the other end, lagging, but no big surprises here, are utilities, materials, industrials and staples, ranging from 67% positive surprises to 76% positive surprises. So that’s not a disappointing result. That’s just, I think it’s an interesting dichotomy, whereby some of the growth sectors are posting results well in excess of expectations, more so than the value and cyclical sectors. But overall very, very positive results for the second quarter.

Terry Gardner, Jr.:

So you might want to ask me then, if results were so strong, why does the market seem a little wobbly here? And so, as I mentioned, our second point being that there are some cross-currents that the market is facing and that the economy is facing, as we look out into 2022. Here we are. It’s summertime. This is the period when analysts typically flip forward a year and start looking at results for the next calendar year. So analysts, investment bankers, portfolio managers, other financial professionals, will start to look out and start to value companies on 2022 prospects. And so that’s what we’re really going to focus on in the coming months.

Terry Gardner, Jr.:

And what might investors be faced with? Well, it’s no surprise that as we look out 12 months or so, it’s likely that we’re going to be seeing less fiscal stimulus as stimulus packages start to wind down. Of course, there’s an infrastructure program that will probably kick in, but will last for several years. It is likely that over the next 12 to 18 months, we’ll see less monetary stimulus, so the market will have to digest that. It’s likely, and we’re facing it now, that we’ll see more inflation. Whether it’s transitory or not, some inflation measures are going to be sticky, so the market will have to grapple with higher inflation, at least for the next 12 months or so.

Terry Gardner, Jr.:

It’s likely that earnings growth is slowing. Remember, last year was a low base because of the COVID impacted performance that a lot of companies turned in, depressed earnings, depressed sales. This year, comparisons are quite easy. Next year 2022, earnings and sales comparisons will be more difficult, so it’s likely that the pace of change, the rate of growth will slow next year and that can have an impact on valuations.

Terry Gardner, Jr.:

And finally, there’s likely to be some margin pressure on businesses, as they wrestle with pressure from higher goods and services inflation and higher wage costs. So all things that we need to keep an eye on as we calibrate evaluations and outlook for the market for 2022. Which leads to my third point of having some secular and cyclical exposure in a growth portfolio.

Terry Gardner, Jr.:

As you know, if you followed our work a year or so ago, we started to gain some cyclical exposure. We call them growth cyclicals. They’re companies in more cyclical and mature industries, but companies that have some growth prospects and growth aspects to their businesses. And so we’ve created a portfolio with some balance that has that exposure, in addition to the secular exposure that we are known for, which is identifying companies that will grow, regardless of economic backdrop.

Terry Gardner, Jr.:

And so we’re continuing to hold that balance. We own both secular and cyclical winners and things. That’s a strategy that will continue to work into 2022. Which leads to my fourth point, is that while others are concerned about the market rolling over here, it’s important to remember that there’s not necessarily a bad time to invest. And let me share some figures with you to illustrate the point.

Terry Gardner, Jr.:

I often get asked, “Hey, is this a good time to invest in the stock market,” or others take a different view and suggests that the market’s had a great run here. Maybe it’s going to take a pause and we should hold back. I think it’s very difficult to time the market and the data proves that out.

Terry Gardner, Jr.:

I want to make the final point being that if you were investing at some of the worst times, you’ve still made out okay. To illustrate the point, I went back to take a look at, what if you invested in October of 2007, just before the financial crisis, at the very peak of the market? At the high point before the market rolled over and declined into the financial crisis through 2008 and 2009. Well, if you’d bought the market at the peak, you’d still be up 280% today. So between that period in 2007, and now, okay?

Terry Gardner, Jr.:

There’ve been some other stumbles that the market has experienced in the last couple of years that are noteworthy. I think, if you may remember back to 2018, in September of 2018 through about Christmas, the market was having a very difficult time digesting the prospect of higher interest rates. And during that period, the market fell 17%, okay? Well, if you had invested on the day before it started falling 17%, so on the 21st of September, around that period of time, so you’d be the worst investor. You’re buying when the market’s peaking. You’re still up 59% today.

Terry Gardner, Jr.:

And the final period I took a look at was last year, during the pandemic, okay? The market fell 32% between February of 2020 and March 20th, 2020, okay? Well, if you had bought the market, bought the S&P 500, in February of 2020, at the peak, just before COVID fears took over and the market crashed, you’re still up 34% today. So the point being, you don’t need to try to time the market. Even buying on some of the worst days, if you’ve got a long-term investment horizon, pays off in the long run.

Terry Gardner, Jr.:

So in summary, I hope everyone enjoys the rest of their summer. If you’re on the South Shore of Long Island, like I am, look out for those sharks and if you have any questions or want to discuss your portfolio or some ideas, or create a new portfolio, give me a call at (212) 888-6403, or email me at tgardner@cjlawrence.com. Look forward to speaking to you soon.