In The Lonely Bull

It’s now earnings season again. Soon, most public companies will be reporting their second quarter results. What can we expect? Firstly, it will be messy; a mix of companies whose performance was hurt badly by the spring lockdowns mixed in with those that benefited. Secondly, investors must give a pass to those that, through no fault of their own, were unable to perform at past levels. In short, a lot of adjustments need to be made to give an accurate assessment of true enterprise value.

There is also an in favor and out of favor component to current stock valuations. Investors are in love with enterprises that benefit from the current environment. Tech, e-commerce, some healthcare stocks are among these. In fact, these have become so popular that, in many cases, valuations seem stretched. Momentum is the word for a few of these; the higher they go, the more some chase them. Performance is, therefore, bifurcated, the in-crowd vs. those that are not.

Unfortunately, money flows have not been following the performance of some of the popular indices. This can be a warning that volatility could once again spike.

It’s a time to be a little cautious, especially with fresh commitments to some of the leaders. These should only be of interest on pullbacks. With more virus outbreaks, an impending presidential election, and ever-present uncertainty, count on some of these.

Stay steady, my friends!

El Solo Toro

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