This week in the market we saw the S&P 500 dip into correction territory while the Nasdaq composite got down into the dreaded Bear market. All of this and we saw a hot war kick off with Russia invading Ukraine. YIKES!! In this update, the fellas at PP&W talk through what historical precedents suggest, how the consumer and Corporate America are looking, and more.
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See Charts referenced in the video below:
Super helpful chart in reminding us that while every year has some sort of "intra-year" decline (the AVERAGE of which is 14%!) 32 of 42 years were positive from January 1st to December 31st.
Chris offers this chart he found on all market corrections (a market that is 10% or more below recent highs) since 1950 (hat tip, Ben Carlson). While we have all have long memories of the Bear Market declines (20%+) Chris makes the point that a correction has become a bear market less than 30% of the time. In other words, 2/3 of the time a correction is just that so believing it just has to get worse may lead to missed opportunity and unnecessary worry.
History cannot be used to predict future results, but the evidence presented in these charts suggests that the initiation of a war has not historically brought the unfortunate horror of the conflict to markets.
Another note of reason to not get too bearish, Chris shared that Q4 Earnings have been coming in strong. An 80% beat-rate against consensus with an average surprise of beating analyst expectations by 9.3%. Not too shabby for US Large-Cap companies.
Adding further strength to earnings is a more reliable indicator that Sales have been strong as well. Whereas earnings can be engineered from one quarter to the next, sales aren't fungible... you either sold goods/services during the quarter or you didn't. Again, a beat-rate against consensus of 77% with a surprise of 2.9% higher than analysts expectations.
With earnings having come in strong at the same time that price has declined, we've seen the valuation (Price / Earnings, specifically) of the market come down. While this chart shows that valuation isn't all the way back to average, it is cheaper now than it was at any point last year.
One last chart the guys examine to encourage the avoidance of being sucked into negative thinking is the strength of the US Consumer. Tremendously low household debt service, strong balance sheets, and highest net worth on record.