“Great Expectations”

The second quarter of last year was during the height of business reaction to the Covid-19 pandemic. Some companies, coming to grips with what was happening, dispersed their workforces, reigned in expenses, took charges in anticipation of losses, and, in general, prepared for the worst. As a result, reported earnings for public companies were way down.

The same period this year, the economy has substantially recovered. The commercial landscape is clearer, and some companies are finding that the reserves they set aside are not all needed. So, earnings expectations compared to this quarter last year are for average gains more than 60%. Some analysts are even whispering an 80% growth number. When expectations are so high, there is not much room for positive surprises.

Markets move dramatically on surprises. We hope that there will not be too many negative ones. By just meeting expectations, investors are likely to simply shrug their shoulders and move on. So, do not expect fireworks to the upside, it has already been anticipated and baked in. The real question is, what will the sustainable rate of growth be? We are optimistic and believe it will be good, and stock prices will further reflect this in time. Stay steady my friends.

The Lonely Bull