Strategy Note /

On To Earnings

  • While inflation is all the rage its time to turn to earnings; we expect decent earnings growth across the US, EU & Asia

  • As for inflation this Pantheon quote sums it: evidence of falling inflation is everywhere except in the inflation data

  • Positive seasonality, offsides sentiment & positioning coupled with signs of basing in stocks suggest a transition ahead

On To Earnings
Jay Pelosky
Jay Pelosky

TPW Founder & Global Strategist

TPW Advisory
14 October 2022
Published byTPW Advisory

Given that it is American football season it seems appropriate to invoke NE Patriots head coach Bill Belichick’s famous adage “on to Cincinnati” which he gave back in 2014 after a blow out loss to the Kansas City Chiefs… his focus forward comment led to a W vs Cincinnati and a 4th Super Bowl victory in the famous goal line interception game vs Seattle (yes, I grew up in Mass and am a Pats fan). So, while inflation is all the rage its on to earnings season. 

But first, the relentless rise in US inflation prints continued yesterday with another new high in core inflation at 6.6% y/y, frustrating those like us at TPW Advisory who have been anticipating a more visible and sustained roll over in inflationary pressures given all the places where prices are clearly slowing. We appreciated the comment made by Ian Shepherdson of Pantheon Macro, whose work we like a lot: "Evidence of falling inflation is everywhere except in the inflation data." 

As we have been discussing, first in our Monthly & then in last week’s Musings  we believe continued extrapolation of these trends is increasingly dangerous for investors. Yesterday’s US equity market action is a perfect encapsulation of what we wrote about in “Two Sided Markets” last week. A 2% drop to start the day followed by a sharp rally to leave the SPY up 2% is only the 5th such reversal day in the past 30 years according to Bespoke Investment Group.