(Please enjoy this updated version of my weekly commentary from the Reitmeister Total Return newsletter).

We are entering the heart of earnings season with bellwethers from most every industry opening their kimonos wide. The better the results from these earnings reports, the greater the catalyst for the overall market to press to new highs.

Conversely, poor results would put a fork in this latest rally with stocks likely retreating from current heights.

Let’s take a quick look at the early earnings results to see what it tells us about what likely lies ahead. Plus digging into the recent slate of economic reports for clues on the macro environment.

Market Commentary

9 of the last 10 sessions have been positive for the stock market. This has helped stocks put the recent pullback to rest and quickly pressing to new all time highs intraday today @ 4,598.53.

Why?

WHY NOT!

We have spoken at length in this commentary that the recent pullback was just a natural process of investors taking a rest after another long bull run. So it was prudent to keep our portfolios aligned with the primary bullish trend so we would accrue the full gains whenever the bull reawakened from its temporary slumber.

Indeed it seems that the early positive results from Q3 earnings season was the main catalyst that acted as an alarm clock to investors to wake up and  buy stocks once again. This makes sense when you realize that 83% of the early reporters have beaten estimates. That is a nice spot above the normal level of quarterly surprises. Also important is that 79% of the companies beat on revenue as well.

As any accountant will tell you, earnings are easy to manipulate, but not true with revenue. That is why its vital to see a company beat on both levels.

For as good as the above is, I need to share this note of caution from earnings experts like Nick Raich of EarningsScout.com. He is concerned that these beats are also coming with a higher than usual rate of declining earnings estimates for the future because of concerns about inflation and supply chain.

Both Nick and I learned the importance of earnings estimate revisions with our time at Zacks Investment Research. However, I think Nick is being a tad overly sensitive as the size of estimate declines is very small. Second, with interest rates this low it doesn’t take much for investors to appreciate that stocks are the much better value than bonds or cash.

This point, as I have shared 107 times this year, is the key behind the recent bull market. Truly it would take 10 year rates pressing above 3% to start pondering when investing in stocks becomes less attractive making us consider more defensive strategies in our portfolios. We are nowhere near that level so best to align with the prevailing bullish trends.

Now let’s turn to the recent economic reports to see what it tells us.

Jobless Claims last week came in under 300,000 for the second straight time. Less jobs lost typically means more jobs gained which should show up next week in the monthly ADP and Government employment reports.

3 regional manufacturing reports all came in at healthy levels increasing the odds that ISM Manufacturing will show national manufacturing is also clipping along at a healthy pace. Most impressive of this bunch was Philly Fed at 23.8. Dallas Fed at 14.6 showed a nice increase from 4.6 in the previous report. Lastly was Richmond Fed coming in today at 13 which erases the -3 blemish from last month.

The PMI Flash report on Friday showed healthy signs across Services as well with a 58.2 showing up from 54.9 last month. And yes, Manufacturing is looking even more impressive at 59.2.

As shared many times in the past, these reports use 50 as a center line. Below that is a sign of contraction. Above that is expansion. Most of the time the economy hovers between 53 and 55. So anything above that should be viewed as impressive improvement. Indeed that is what it says now which only helps to bolster the case for future economic expansion and earnings growth.

Lastly, lets talk about the gain in Consumer Confidence appearing in the 113.8 result today versus 109.8 previously. Many people have been concerned about the consumer as some other reports show them becoming increasingly alarmed with rising inflation. But often that is an immediate reaction and as things settle in it becomes not such a big deal. That is likely what we see happening in today’s Consumer Confidence reading.

Add it all up and right now it is still wise to stay bullish. That is why I advocate a 100% invested stance in our portfolios to not miss a beat as the profits unfold.

What To Do Next?

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Why?

Because it has beaten the market consistently over time including a robust +34.88% return year to date.

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Wishing you a world of investment success!

Steve Reitmeister

…but everyone calls me Reity (pronounced “Righty”)
CEO, Stock News Network and Editor, Reitmeister Total Return

SPY shares were trading at $456.11 per share on Wednesday morning, up $0.15 (+0.03%). Year-to-date, SPY has gained 23.19%, versus a % rise in the benchmark S&P 500 index during the same period.

About the Author: Steve Reitmeister

Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks. More...

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