Let’s be candid. Sometimes stocks just get out ahead of themselves. When stocks grow too quickly for their fundamental performance, it is often called “getting their head in front of their skis.” If you’re skiing, this is a great way to tumble head first. You may hurt yourself. If you pull back and gather your sense of balance, you can recover to have a nice downhill run!
A lot of stocks have been posting great earnings. Lately, I have seen a significant number of stocks having much better earnings than analysts predicted and it elicits a significant blow by the market. About a year ago, this would only happen if the earnings were at or a slight bit lower than analysts predicted. That’s a big change in sentiment.
The earnings coming in now are representative of the last quarter. After a quarter ends it takes a few weeks before they are reported, so, in essence, quarterly earnings are old news. The “tariff tantrum” started during the last quarter. The tariff activity is like watching a slow motion video. It doesn’t happen suddenly, but slowly encroaches on business’s performance. I would expect to see more serious effects in the coming quarters. I believe this somewhat explains the negative reactions to good earnings. Also, the short term “sugar high” from tax reductions is a part of that equation.
A lot of CEO’s are saying that they haven’t seen much effect on their businesses yet. Quite frankly, I think they ought to get acting awards for their performances! After the Harley Davidson and the Boeing incidents, I don’t think any CEO wants to be “called out” by the president. First, it will be bad PR for their sales efforts. Second, Trump is known to carry a big stick. It is good to stay out of his way. But you can be assured, they are looking for ways to mitigate unpredictable risk factors and taking actions behind the scenes.
A pull back from risky behavior can save the day buy keeping you from “breaking a leg”. That way, you can recover on your successful run!
