Investors Betting Heavily On Earnings Rebound in First Half of 2020

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays.

It is interesting that all the three major averages are hitting all-time highs following three straight quarters of declining earnings growth for the S&P 500.

The latest estimates from FactSet show that the fourth quarter also will produce negative earnings growth for the S&P 500 — forecasts have been slashed to -1.4% from 2.3%. The blended (year-over-year) earnings decline for Q3 2019 is -2.3%, which is below the five-year average earnings growth rate of 6.9%.

The blended (year-over-year) revenue growth rate for Q3 2019 is 3.1%, which is below the five-year average revenue growth rate of 3.5%. If 3.1% is the actual growth rate for the quarter, it will mark the lowest revenue growth rate for the index since 2.7% revenue growth was reported in Q3 2016.

In any other year, there would be some measure of caution or trepidation. But the forces of a “Phase One” deal with China, a Fed chairman declaring the that Fed isn’t inclined to raise rates anytime soon and an October employment report that debunked any notion of a pending recession all have more than made up for the earnings shortfall.

Let’s just say that on a relative basis, the sky is blue. On an absolute basis, one wonders how the market can levitate so strongly with the S&P 500 trading at a price-to-earnings (P/E) ratio of 17.4.

Well, it’s not hard to figure out why. Big expectations for an earnings surge in 2020 are being priced in as we speak and are fueling a F.O.M.O. (Fear of Missing Out) trade on the part of cash rich investors. Even though Wall Street is concentrating on the S&P 500 growing its earnings by 9.7% next year, that number has recently been lowered from 10.6%.

Still, it’s a major reversal to the upside, and investors have seized on this assumption. And for all practical purposes, it is my personal view that the market is pricing in another four years of President Trump.

The latest display of card-carrying Democrat billionaires jumping into the 2020 election race for the White House is a full showing of a “panic room” in the making. Former Massachusetts Governor Deval Patrick was a managing director at Bain Capital — where Mitt Romney was CEO in the early 1990s. Michael Bloomberg and Tom Steyer took the place of early entrant billionaire Howard Schultz.

Seeing the “never-Trump” movement reach the middle innings, it’s my personal view that Hillary Clinton will enter the race before New Year’s Eve if Joe Biden’s numbers collapse. There’s an old saying that “you can never be too skinny and you can never be too rich.” And it will take big bucks to beat the Donald.

At the New York Times DealBook conference, Bill Gates criticized Sen. Elizabeth Warren’s proposal to levy a three percent wealth tax on billionaires. “I’ve paid over $10 billion in taxes. I’ve paid more than anyone in taxes. If I had to have paid $20 billion, it’s fine,” Gates said. “But when you say I should pay $100 billion, then I’m starting to do a little math about what I have left over.” And this is what scares the hell out of successful people and companies.

News flash! The redistribution of wealth began nine years ago with the passage of Obamacare. Small business owners like myself are getting crushed under the weight of redistribution. In 2011, medical insurance for my wife and me used to cost $450 per month with a $2,000 total deductible for an Anthem Blue Cross PPO policy. The yearly outlay totaled $7,400, plus some extra for medication.

Today, the same coverage from Anthem for 2020 will cost $2,530 per month with a total deductible of $12,000 before Anthem pays 100% of the cost, plus extra fees for medication. The total yearly outlay — drum roll please — $42,360. Don’t get me started on how’s it all going to get paid for. Small business will bear the burden.

Plus, who’s going to argue with Bill Gates, Warren Buffett and the rest of the billionaires and millionaires who have signed the Giving Pledge which means that they have committed themselves to devoting at least half of their wealth to philanthropy and charitable causes. What Elizabeth Warren fails to understand, even as a Harvard professor, is that these people, if threatened, will just simply leave and become citizens of a tax-friendly country.

Their lives here in the United States won’t change. They will still own all their property, work as if nothing had changed and they’ll pay no income tax in Monaco. Why? Because unlike most people, they can.

Here is another note to Senator Warren: Be careful for what you wish for. Every day, MarketBeat tells me about the amazing amount of stock sales from corporate insiders who feed the U.S. Treasury with hundreds of billions of dollars in capital gains.

Again, it is my personal view that before New Year’s Day, Hillary Clinton will enter the race for president. Remember the Newsweek cover that came out four days before the November 9, 2016, election? It may as well have been a Sports Illustrated issue. Pride comes before the fall even to the best of us.

So, while the stock market enters a new higher trading range, the election cycle is sure to bring some new measure of uncertainty and a whole lot of entertainment. For the record, I’m not a big fan of the messenger. In fact, I am not a fan of it at all. But I am a fan of the message and the fact that “you can’t always get what you want.”

I do hope President Trump and his trade team don’t lower their guard against China. What’s going on now will greatly affect the global economic and political chessboard for the next generation and beyond.

At some point, the drunken-sailor spending increases by all levels of government must stop, but that’s a rant for another day. Meanwhile, political vitriol will soon achieve levels of visceral attack that will both be historic and will require that television stations post “Some Material May Not be Suitable for Children — Parents Strongly Cautioned.” I suspect that, when the dust settles from the impeachment hearings and the votes come in next November, the Trump economy will still continue to hum right along.

Join Me for the Orlando MoneyShow, February 6-8, 2020, at the Omni Orlando Resort at ChampionsGate. I will be speaking Thursday, Feb. 6, 10:30 a.m. about Double-Digit Income Investing. On Saturday, Feb. 8, I will talk at 8:00 a.m. about Extreme Profits Made Easy. Other investment experts who will be speaking include retirement specialist Bob Carlson, Wall Street investment powerhouse Hilary Kramer and world-traveling, free-market economist Mark Skousen, who leads the Forecasts & Strategies newsletter. Register by clicking here or call 1-800-970-4355 and mention my priority code of 049265.

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