Earnings season has been strong. The results could have sparked more bearishness, but instead have generally been a sigh of relief. Of the companies that have reported so far, an above-average 73% beat earnings estimates, and 63% beat sales estimates. In terms of guidance, an equal number have raised guidance and lowered guidance (4%). We expected a higher percentage of companies lowering guidance than raising guidance, but that has yet to play out. Of course, some companies aren’t willing to provide guidance at all due to tariff policy. So far so good.
Let’s hope President Trump doesn’t change his mind and once again go after Fed Chairman Jerome Powell and lobby to replace him before his term is up in May 2026 or try to take away the Fed’s independence. Although an arguable point, such a battle would likely end up at the Supreme Court with President Trump losing the case. We are as concerned about this as we are about tariff policy. The Fed losing its independence would be a shot heard around the world. The effect on our economy and markets would be extremely damaging.
This all started when President Trump was reacting to Mr. Powell’s remarks that the President’s tariffs complicate the Fed’s job of maintaining stable prices with low unemployment. Powell spoke the truth. Tariffs are a tax, which means higher prices for tariffed goods. And President Trump is right that the Powell Fed has been wrong before but Mr. Powell is right to be wary of trying to offset the impact of tariffs by easing money too much or too soon.
Hopefully we have heard the end of this. If the President wants faster growth and less market turmoil, he can help by taking his foot off the tariff accelerator.
S&P 500 IS UP 10% OFF APRIL 8TH LOW
The S&P 500 did not make it to official bear market territory at its April 8th low – down 19% from its February high. Since then, it has bounced back about 10%, but remains well below its long-term 200-day moving average. It is far from trading in the nice, steady uptrend we saw in 2023 and 2024 before tariffs took control of the markets. Further choppiness is likely in the near-term given this headline-driven market. That being said, market action since the lows made earlier this month has nearly always been followed by higher prices six to twelve months out.
Breadth continues to be a big positive. The cumulative advance/decline line is getting close to making a new high. This suggests the S&P 500 should ultimately resolve higher. The NASDAQ 100 had a 100% positive breadth day last Tuesday, a rare occurrence – every stock in the index traded higher.
Until last week, technology stocks, including the Mag 7, were left for dead during the mini-crash. They have rebounded sharply and are now back to within 1% of the YTD S&P 500 return.
We are also happy to see the equal-weighted S&P 500 stock index perform in line with the published cap-weighted version. It has been a broad-based rally no longer dominated by tech. This is a necessary development in our view for the bull market to find its legs again.
We continue to focus on upgrading client portfolios with new stocks with high growth prospects and reasonable valuations. This is admittedly getting harder as many purchase candidates have already risen 10-20% off the lows.