(John McHugh, WealthTrust) According to FactSet, 75% of reporters thus far have surpassed consensus estimates, below the five-year average of 77%. In aggregate, companies have reported earnings 3.4% above estimates, below the five-year average of 8.8%.
In addition, BofA noted its three-month guidance ratio is tracking at the lowest level since April 2020 at 0.52x. Added that corporate sentiment during earnings calls sank last week, with a similar y/y decline as in 2008. Also pointed out that mentions of weak demand jumped to the highest level since COVID, with record weakness in consumer discretionary demand relative to staples.
While thematic takeaways have been mixed, there were a few higher-profile areas of concern. AT&T flagged delayed bill payments. Netflix lost subscribers (though not as bad as feared). Homebuilders discussed how the surge in mortgage rates has started to slow the housing market. Snap highlighted heightened headwinds on digital advertising spending that could have some implications for other big tech names. Qualtrics noted lengthening software deal cycles and a ramp in deal scrutiny. Airlines continued to flag capacity constraints.
Most of you know that our investment methodology considers current quarterly earnings plus earnings guidance. We also consider the movement in the average leading indicators, the current Treasury yield curve plus our trend analysis program.
We are currently overweighted in cash. Our trend analysis went to cash at the end of June, the current relationship between the 2 year to the 10-year Treasury yield, finally the average leading indicators have been trending down.
Bull markets always climb the wall of worry! Based on the information above, we believe it is prudent at this time to keep some cash to invest in oversold equities.
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