Tom Lee joins Michael Batnick and Downtown Josh Brown to discuss the liquidity starved bull market, earnings season, the Fed's next move, housing, and changing the mindset of persistently bearish individuals in the stock market.
Early earnings reports exceed expectations, particularly in discretionary and financial sectors.
PMI indicators suggest a potential breakout for the industrials sector.
Stocks may experience significant gains as inflation potentially remains under control.
Deep dives
Positive Earnings Surprises and Revenue Growth
Early earnings reports are exceeding expectations, with companies in the discretionary and financial sectors beating by an average of 13%. Revenue growth is also strong, with discretionary and financials showing 6.8% and 9% growth, respectively.
Rising PMIs and Industrial Stocks
PMI indicators for US manufacturing are showing improvement, suggesting an expansion in business activity. Historically, when PMIs rise from below 47, industrial stocks have seen average gains of 22% and a win ratio of 95%. This indicates a potential breakout for the industrials sector.
Stocks Bottoming Before Earnings and Inflation Break
Stocks tend to bottom before earnings and the defeat of inflation. Historical data shows that stocks bottomed 11-12 months before earnings bottomed and experienced significant gains. With inflation potentially under control, stocks may see a strong upside in the coming months.
Labor shortage and the potential longevity of low unemployment rates
The podcast discusses the possibility of low unemployment rates being sustained for a long time, despite concerns of a downturn in the job market. It suggests that the employment market may not be as much of a lagging indicator as it used to be, as there is an underestimation of the supply side of employment. Factors such as a rising participation rate and an influx of migrants who are not yet working could contribute to the continued addition of jobs without overheating the economy.
Market reactions, good news, and the strength of the economy
The podcast explores the market's reaction to good news, with the host expressing a preference for the market going down on good news rather than the inverse. It questions whether investors are right in paying attention to the 'higher for longer' story, or if they may be missing the fact that good news is, in fact, good news. The conversation highlights retail sales and the continuing strength of the economy, with examples of extravagant spending and anecdotes that suggest the Fed may not yet be done with rate hikes.
On episode 114 of The Compound and Friends, Michael Batnick and Downtown Josh Brown are joined by Tom Lee to discuss: earnings, the liquidity starved bull market, economic indicators, the Fed's next move, housing, and much more!
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