The Next Two Weeks Can Be Pivotal

The next two weeks can be crucial in determining the direction of the markets. Earning season accelerates today with some high profile announcements. Later in the week the likes of Amazon, Google, and Microsoft report.

All will be focused not only on the results but also management commentary especially surrounding the important task of quantifying tariff risk.

To date, about 15% of the S&P 500 has released results. Approximately 85% of results have exceeded expectations but top-line results are disappointing as only 65% have beaten estimates versus last quarter’s pace of 72%.

And then there is the election. What can be written that has not yet been discussed? I have my views but like most, they are rhetorical and conjectural. I will, however, write historically the pocketbook dictates electoral outcomes.

Many times I have used the word tectonic to describe today’s environment. Monetary policy has changed to “quantitative tightening” from “quantitative easing.” Globally the geopolitical landscape has changed to economic nationalism from interdependency and multipolarity.

Earnings momentum has also changed where the percentage increase for value EPS will exceed that of growth EPS for the first time in at least 10 years.

What has not changed is the market strategy where passive investing is still dominating, a total domination from the largest capitalized technology names, companies that are now beginning to face the wrath of global governments.

Will these companies disappoint? And if so, will there be a tectonic rotation from passive to active management? As widely discussed, passive management has greatly outperformed active management for many years, partially the result of the unending flow of monies into ETFs and index type products, a strategy that benefits the largest capitalized concerns.

Change is the only certainty and in my view, the odds are rising that historians will view the last two years as tectonic, a gateway into another era.

Commenting briefly on yesterday’s market activity, the 10-year was flat, the NASDAQ was up by 0.25% and the S&P 500 was down 0.40%.

Last night the foreign markets were lower. London was down 0.50%, Paris was down 0.97% and Frankfurt was down 1.50%. China was down 2.26%, Japan was down 2.67% and Hang Sang was down 3.08%.