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Weighing The Week Ahead: All Eyes On Earnings

Jeff Miller profile picture
Jeff Miller


  • The economic calendar is very light and the week is a short one. The earnings calendar is heavy. Voila!
  • The economic news has been very good and the market has responded. Technical market health is also better.
  • The P/E multiple has increased, even on forward earnings. That is important to watch.
  • I suggest the best factors to watch during earnings season and where to find them.
  • And of course, we have stock ideas and hints on how to play the Great Rotation.

The economic calendar is one of the lightest we will see in 2020, and we have a holiday-shortened week. Economic data will not be the main story. The news will be filled with Impeachment updates, but that is not a focal point for investors. For us there are 144 earnings reports from S&P 500 stocks. It will be a case of:

All Eyes on Earnings

Last Week Recap

In my last installment of WTWA, I asked whether it was yet time to worry about inflation. It has been so tame that most do not see the risk. I said that I was probably still early in this worry, and so it was. I also failed to reach much of my audience. Despite my rationale that understanding the Fed helps your investing more than railing against the government’s inflation numbers, many remain unconvinced. At least I tried!

Personal Note

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Mrs. OldProf asked me how this picture of my box of cords got in the WSJ. She believes that I could have done more weeding before our recent move. (I’m not allowed to talk about her “mystery” stuff). She doesn’t know that I have three boxes like this (I think – might be more).

The Story in One Chart

I always start my personal review of the week by looking at a great chart. This week I am featuring Jill Mislinski’s weekly update, which combines several key features in an easy-to-read picture.

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The market gained 2.0% for the week. The trading range was 1.9%, on an intra-week basis. You can monitor volatility, implied volatility, and historical comparisons in my weekly Indicator Snapshot in the Quant Corner below.


Statista shares the most read Wikipedia Articles of 2019. I’m sure there is a lesson in this.

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The News

Each week I break down

This article was written by

Jeff Miller profile picture
Seeking Alpha mourns the passing of Jeff Miller, on May 7, 2021. During his time at Seeking Alpha, Jeff attracted a following of close to 40,000 readers and published more than 1,500 articles. He was a portfolio manager at Incline Investment Advisors, LLC. Jeff also was President of NewArc Investments, Inc., and served as a university professor.....................................................................................................................................Jeff is Portfolio Manager for Incline Investment Advisors, LLC.,manager of both individual and institutional investments. A registered investment advisor, he was formerly President of NewArc Investments, Inc. Jeff is a former college professor with a hands-on, real world attitude. His quantitative modeling helped inform state and local officials in Wisconsin for more than a decade. A Public Policy analyst, he taught advanced research methods at the University of Wisconsin, and analyzed many issues related to state tax policy. Jeff began in the financial business as Research Director for a trading firm at the Chicago Board Options Exchange. He investigated anomalies in the standard option pricing models, taught classes for beginning options traders, and developed new forecasting techniques. In 1991 he established a general research consultancy, working with professional traders at all of the Chicago financial exchanges. In 1998 he started NewArc Investments, Inc. Jeff has a commitment to the specific needs of individual investors. It is not a one-size-fits all approach, but one that emphasizes the unique circumstances of each client. Jeff also serves on the board of a small technology company. He occasionally serves as an expert witness in legal cases involving financial markets and hedging.

Analyst’s Disclosure: I am/we are long C, CAPE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (85)

Brad Thomas profile picture
@Jeff Miller Thanks for the "sucker yield" citation. WPG rated strong sell by iREIT team
iphpweb profile picture
good article, always a nice read, thanks @Jeff Miller
as for the great chart - I see 2 gaps and IMHO daily gaps are to be closed sometimes soon, so we might be facing some slight correction downwards, market is about to perform sideways so to say

keep writing for us))
Jeff Miller profile picture

I was expecting someone to discuss the closing of the daily gaps! We shall see.

dancing diva profile picture
Perhaps the coronavirus will be the catalyst/excuse for closing the gaps.
NervousNeville profile picture
Does anyone here care to critique my current asset allocation?

Age:43 Retirement target: 62

US Stock: 53%
Non-EM Foreign: 9%
EM: 9%
Bonds: 20% (mostly short/intermediate duration plus municipals which I'm tempted to dump)
Cash equivalent: 9% (Money markets with a decent yield)

Lake OZ boater profile picture
@NervousNeville asked: "Does anyone here care to critique my current asset allocation?"

-I think your allocations line up well with your investment horizon.

-At age 43, you have a remaining life expectancy of 38.7 years. (i.e. your investment horizon is 38.7 years).

Source: www.ssa.gov/...

Consider a basic financial planning concept...

"If a buy-and-hold investor with no particular view about market conditions or future returns wishes to have a fairly predictable amount of wealth at some future date, that investor should hold a portfolio with a duration that is roughly equal to the investment horizon."

ETFs used for estimates of portfolio durations:

Stocks: I used some stock index ETFs to get modified duration estimates of your holdings, using a quick rule of thumb, i.e. the dividend discount model (DDM).

SPY: 55 years

VXUS: 32.6 years

VWO: 30.8 years

Bonds: I estimated a blended duration of 5 years-- considering you hold both short-terms and intermediates.

Cash: Has a duration of zero (0).

Your portfolio allocations' overall duration...

(0.53 x 55 yrs) + (0.09 x 32.6 yrs) + (0.09 x 30.8 yrs) + (0.2 x 5 yrs) + (0.09 x 0) = 35.7 years.

Your portfolio's 35.7 years is pretty close to the 38.7 years investment horizon.

See "Matching Investors to Portfolio Duration" at link.


Other thoughts:

-The calculations should be done once annually.

-You probably could even have an even higher overall stock allocation (your personal risk tolerance permitting of course) by decreasing your US exposure and adding more to your international stocks allocations. The international indexes have lower equity durations.

-Your current international allocation is 18% / 71% = 25%. Given high valuations in the US market, Vanguard is recommending up to 40% in international stocks.


Hope this helps. Good luck in the years ahead!
NervousNeville profile picture
Thanks so much for your analysis and the links. I really appreciate it. I'll look into this further.
Lake OZ boater profile picture
@NervousNeville FYI... Rationale for increasing international equities allocation.

"In each market we examined, our analysis indicated that volatility was reduced most with an allocation to international equities of between 40% and 50%. While this observation may help investors determine the appropriate mix of domestic and international equities,
volatility reduction is not the only factor to consider."

Mr. Miller, Silverblatt's S&P 500 earnings spreadsheet showed 27 companies reporting last week-2 of which did not report. There were also 4 companies that reported in the first 2 weeks of the year. He also shows 52 companies scheduled to report for this week. So I'm curious as to where you got your numbers for this article.
Jeff Miller profile picture
@Randall Potter I am using Refinitiv, whose table says 44 for last week, 44 for this week, and 130 for the coming week without any dates as headers. I just started using that report, so I'll try to study it more.

Thanks for your observation.

The news wasn't all rosy from the Jolts report. JOLTS reported job openings dropped -561k to 6,800k in November. This is the first sub 7,000k print since March 2018.
Does anyone know if JOLTS is seasonally adjusted?
Jeff Miller profile picture
@alpine Yes, and benchmarked in a way similar to the payroll employment report.

from the release -- www.bls.gov/...

Seasonal adjustment

BLS uses X-13 ARIMA to seasonally adjust several JOLTS series
utilizing moving averages as seasonal filters. A concurrent seasonal
adjustment methodology is used in which new seasonal adjustment
factors are calculated each month, using all relevant data, up to and
including current month data. JOLTS seasonal adjustment includes both
additive and multiplicative models and REGARIMA (regression with auto-
correlated errors) modeling to improve the seasonal adjustment factors
at the beginning and end of the series and to detect and adjust for
outliers in the series.
@Jeff Miller Many thanks, in which case, I do "worry":
- BA's travails are extending far and wide within and without its vast eco-system;
- perhaps the best of "X-13 ARIMA" seasonally adjusting model could not 'readjust' for the unseasonably warm weather in Dec?
Bill Kort profile picture
Jeff, I absolutely agree that the issue of a potential resurgence of inflation is under-appreciated. In my opinion it will be a result of the reversal of the globalization trend that’s been in place for the past two or three decades. Cheap global labor (as well as technology) has kept our labor costs and prices in check. In the process we have created huge consumer markets in China, India and elsewhere and societies in those countries that will continue to demand upward mobility. They will demand resources and higher wages that will push prices up all around the world. Of course, we have printed oodles of dollars, yen, yuan and euros to propel this demand. Of course, this will not happen overnight and in the beginning it will be very positive for incomes in this country as well as the ability of corporations to raise prices. Pricing over the past 2 or 3 decades has not been easy. As such, it has taken one of the arrows out of the corporate quiver that used to be used to increase profitability and earnings. When this takes effect it will eventually show up in interest rates, eventually leading to maybe much higher interest rates, higher rates the Fed will not be able to control ... the return of the bond market vigilantes.

I wrote about this in kortsessions a couple of posts ago: www.kortsessions.com/...

As usual, my crystal ball remains very foggy. I’m not sure when the tipping point comes. But I think it will be a positive before it becomes a negative. Anyway, it’s just my two cents. I appreciate the work that you do weekly and look forward future posts.

PNW Total Return Investor profile picture
Awesome reply to a great WTWA. I try to factor in that we are in an extremely low interest-rate environment and while there doesn't seem to be a floor to how low they can go, I regard it as a Pascal's Wager. I, therefore, have allocated portfolios that I manage that way. That means a lower allocation to long-term bonds and high allocation to short-term treasuries.

I guess I am just uncomfortable with using bonds as a price appreciation tool and rather increase my equity allocation if I want price appreciation.
Jeff, Thanks again for a great read. Love the box of cables - I have quite a few (boxes/drawers/wads of) cables around myself and they have saved me from time to time. The cables only go in the trash when they are defective or become truly obsolete (for example the mouse and keyboard cables with circular connectors). This is just the price of living in a technological society...

In the 90's I would argue that the forward PEs on tech stocks were meaningless because they were the result of wishful thinking, not estimates based somewhat on reality. These days the forward PEs are more reasonable in most cases, so I use them (of course when there is an economic shock or recession, they will again be meaningless...). Another reader mentioned they are wary of earnings growth projections based on a shrinking share count due to buybacks - to counter that I look at the 5 year earnings and profit history (not per share) before I invest, to make sure there is no monkey business.
To counter that, real profits are declining now over to 20% in the 1st quarter, it ain't gonna get any better. tariff stocking probably saved real profits from a larger decline faster.

Real earnings are basically at the cycle bottom. If they go any farther, they go below the trend set in 2010.
Mortgage applications weren't very strong. My guess when they fall this week, your nostril will flare. Understand hedonics.
Jeff, an ETN is as good as its issuer. In recommending an ETN, wouldn't a read out on Barcly's liquidity necessary?
Jeff Miller profile picture

Absolutely! Like everything in WTWA, you do your own research before you act. I just find it amusing that a Shiller-named product does so much better than the "standard" use of CAPE.

Good point -- and thanks.

Lake OZ boater profile picture
Really liked the closing on the mystery chart and the Shiller P/Es by S & P 500 sectors !


1. Gurufocus.com tracks the Shiller P/E by sector. (not back to the 1800s!)


Caveats: CAPE 10 is not the ideal metric to apply to financials nor REITs though.

2. Retirement planning expert Michael Kitces has found the CAPE 10 has the highest correlation (0.65-0.7) with the "real" (after inflation) return at an 18-20 year time horizon.

CAPE 10 has a very low correlation to "mean reversion."

See "Shiller CAPE Market Valuation: Terrible For Market Timing, But Valuable For Long-Term Retirement Planning"


3. Kitces has also concluded that CAPE 10 is predictive enough of future returns, that a conservative retirement investor, or pre-retiree, might consider a valuation-based approach for "tactical" stock allocation.


-I prefer using the 50-year average of CAPE 10, channeling the advice of Ben Graham.

-The last 50 years includes oft-mentioned CAPE 10 objections about changes to technology, finance, and accounting practices.

-Ben Graham often reminded his students that objective conclusions require very long samples of large amounts of data, and he used no less than 50 year periods to analyze historical data.

-By shifting the starting or ending date for data samples, he demonstrated that the results change dramatically.

-Graham advocated analyzing data as many different ways as possible, across as many time frames as possible, to provide insights that are more likely to be more durable over time, and include out- of- sample.

A valuation-based approach to stock allocation...

50-year average CAPE 10= 20.5. (much higher than the long-term mean of 16.7).


2/3* times the 50 yr ave. of CAPE 10 = 13.7

4/3* times the 50 yr ave CAPE 10 = 26.6

CAPE 10 Ranges------------------------Stock allocations

26.6 and higher------------------------30%

13.8 to 26.5----------------------------45%

13.7 and lower-------------------------60%

*thresholds found in the Kitces article.

GLTA in 2020!
Dialectical Materialist profile picture
Of course investments should be forward looking.

But there is a simple problem with using forward PE: It is only as good as your earnings estimates.

A decade ago some folks were saying AAPL was undervalued. They were corrected by others who, using forward earnings estimates, said it was fully valued. Then the year would come and go and Apple would crush the earnings projections. Bulls would repeat the notion that AAPL was undervalued and again be told by folks using what proved to be ridiculously conservative earnings projections that AAPL was fully valued.

And it works in the reverse too. TSLA's forward PE has been positive for years. Yet each year they fail to generate any earnings at all. Who is right? The investor who points out that the company hasn't made any money or the one who is certain there are gobs of profit coming any day now?

That's why some folks give weight to past earnings performance. It may be past, but at least it's factual. Forward earnings projections are only as accurate as your assumptions.

It's easy for companies (or analysts) to make rosy predictions about future earnings. And investing IS about the future. But with stocks, as with people, it's important to compare promises about the future with performance of the past.
strange that within couple of weeks 19 pe is now acceptable and for last few decades and century it would be considered overvalued.
Chaffey profile picture
Oh yes but ...everything is new...the new paradigm ...just like in 1999.
FredDorfman profile picture
I think Japanese equities peaked at a hundred p/e back in the 80s on the "blue chip Nikkei." Where there isn't in fact negative rates there is the demand for said such "stimulus" and indeed an order for such a thing. Interesting market corner in palladium tho. No one calls it that of course tho..
....if I remember correctly:
In the 80's, the capital gains tax rate on personal real estate in Japan was ~90%, but the capital gains tax on equity transactions was somewhere around 20%.

People never sold their homes, but had all sorts of equity in the residence. So, borrow against the house, and put the proceeds in the stock market.

Ouch. Not saying 'everyone' did this, but I'd met people from Japan who'd make reference to the phenomena.

The meaning of 'bubble'.
Illinois Bob profile picture
Thanks for the read Jeff...

I've been looking to try to diversify my portfolio and will do more research in the coming week.

Also trying to help my wife make a move of her 401K which she transferred out (still in process due to goof @ holding company). She would freak out when her stock portfolio would go down... from month to month, but she is looking to re-invest it... may want to change mix...

Hope all have a great day and don't get to upset with market closure on Monday...
UncleEddie profile picture
@Jeff Miller

I have a couple of those boxes! They are mostly the result of upgrading my various electronic technologies.
gelstretch profile picture
@Jeff Miller

The depiction of the above identified "box of electronics" is justified .... I refer to mine as a "strategic electronic resource reserve" and it now is has relevance as something of value.
FredDorfman profile picture
natural gas price collapse appears to be the kick off to yet another "Greenspan Put"(on orders via Twitter by President Donald J. Trump.) The impeachment of President Trump is "hyper bullish" for equities and I expect the massive move higher in healthcare and biotech to greatly accelerate. Long $UNH United Healthcare

Strong buy
danwatson888 profile picture
Jeff - very much enjoy your articles/links/charts and thanks for the Barrons link on Biotech/Pharma = www.barrons.com/...
However, as I am 100% invested in Biotech/Pharma/Medtech stocks I remain very concerned should certain Democratic candidates gain in the polls and/or the potential of a Democratic majority of both houses of congress increases. For me the comment "preparing for a rocky 2020" in the article is where I think most in the biotech/pharma sector are at. We shall see.
"Despite the sanguine outlook, it’s clear that some in the sector are preparing for a rocky 2020."
Perhaps Lilly's aggressive statement for 2020 may counter some of the politic.
GLTA in 2020, long ($LLY) and many other biotech's
Re:"Both long-term and short-term technical indicators remain neutral, but are now improving."

I was struck at your quick change of direction, i.e. to revert to 'improving' vs just last week's WTWA!

I feel the main thrust of why US markets keep going up could simply be just the sheer volume of cheap money coming into the "system", i.e. from a supply point of view to purchase all these equities, either in the form of shares, but also, increasingly, ETFs. It seems to me Wall Street and even multinational organisations like OECD, BIS, IMF, etc have not analysed deeply enough the amount of 'searching-to-be-invested' cash that is coming out of not just US individuals, but pension funds, insurance companies, etc but also from non-US individuals and instituions like those named earlier. This may be the singular reason that stocks keep going up to ridiculous levels, and I fear, they may continue to go up.

If there is one indicator that I see as a sign of this 'crazed' environment, it is simply the number of advertisements that have started appearing in my local newspaper, distributed free, asking people to sell their 'used' jewelry of any kind, be it gold, silver, platinum, even copper!

There is no sign of any of these reversing, simply because most of the cash supply seems to be coming from 'surplus' that neither the individual (and in some cases, instituions) will need to 'spend' over the next 10, maybe even 20 years, e.g. insurance companies.
Jeff Miller profile picture

I was also surprised at the rapid change in direction of technical market health. These are not subjective calls, but based upon market data. Our modeling guru, Vince, commented to me, "What a difference a week makes."

Thanks for raising this.

Ian Farbrother profile picture
Hi Jeff. Along those lines, I was particularly surprised this week to see the 'technical health' indicators (particularly short-term) in Quant Corner still stuck at 3.

Very curious as to why they haven't gone up this week.

Cheers, Ian
What justifies looking at only 25 years worth of valuation data? Others use data running back over a hundred years or how about at least back to WWII. Compared to the longer time frames the last 25 years have had much ricer market valuations. Price to revenue and price to market cap are also missing.
Because 50-75-100 years ago the market was dominated by capital intensive, hyper-cyclical and relatively low ROC businesses.

In general, the companies making up today's stock market are much less capital intensive, have higher profit margins/better ROCs, are less cyclical, etc.

Thus when long-term market valuation measures compare these eras (and when "reliably bearish" pundits use them to "prove" the stock market is overvalued), they are not comparing apples to apples. It's not unreasonable to pay a higher P/E for the types of companies making up today's stock market than you'd pay for the companies making up the stock market of 1910 or 1949.
dancing diva profile picture
CFA is correct, but I think the more important reason for the higher p/e's are the many changes to the tax code since Reagan. Reductions in marginal tax rates have given more disposable income - which at least partially lands in stocks. The fact dividend income is given preferential treatment over interest income (around 2003) helps shift money from cd's and bonds into stocks.
I wrote Schiller several years ago and he acknowledged changes to the tax code has had an effect on CAPE.
When we get through this attempt to unseat a duly elected President, the market will be fine, along with the many promising things that can develop as the World shows some signs of calming down.
TeachEnglish profile picture
He has attempted to unseat himself through his lawlessness.
Ptstanford profile picture
Lawlessness? What crime has he committed?
Lawlessness? Where are the actual crimes in the impeachment order? A couple of made up crimes, unlike the 11 actual crimes committed by President Clinton. Oh, and even 31 Democrats in the House voted for his impeachment inquiry, and 10 Republicans in the Senate voted not to convict on the perjury charge. Let's see how many Democrats in the Senate vote not to convict Trump.
Kirk Spano profile picture
One thing I think folks ought to keep in mind is the data underlying what Jeff is doing. Following and UNDERSTANDING the data is vital. It always amazes me how many others cite data exactly opposite of what it really means. Jeff is spot on almost every time.

Quantitative data for investing is also important. I have moved largely toward a quant approach on trading as well. It's the only defense against the machines in my opinion. The combination of value, a smart forward outlook and quant trading are the only ways to mitigate risk and still catch upside.
Jeff Miller profile picture
@Kirk Spano

Thanks, Kirk. Using data provides a solid foundation, helping to avoid confirmation bias.

Kirk Spano profile picture
Data?!?!?!? Who woulda thought!?!?!?!
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