Interesting Charts and Quotes - June Edition

Dear Friends,

Thank you to those of you who attended our summer cocktails event this week. It was great seeing those who could make it. Below we share a few charts to provide some context and color for what we are observing in the market.

In this edition, we review:

How have companies that reported earnings more recently traded?
What does zooming out on long term market index trends imply?
Are there opportunities in small caps?

How have recent reporters performed? - We take a look at US Retailers who reported in May

We note that the Retailers Index has outperformed the S&P 500 since reporting Q1 results in May.
These retail companies have a later reporting schedule than the rest of the S&P 500 and hence were more able to reflect the inflation pressures of fuel, freight and labor we've seen recently.
On average the top 10 companies in this sector reduced their annual Earnings Per Share (EPS) guidance by over -15%.
Despite that reduction, the Retailers Index is up about +1% since mid May when they reported outperforming the S&P 500 by over +5%.
We believe this suggests some of the inflation impact may have already been priced in to the market.
Also, certainty can often be good for the market, even if it represents fundamentals initial expectations.

What are the long term trends of the S&P 500?

Based on a statistical best-fit trendline model, we note that the S&P 500 has recently pulled back to levels slightly below to in line with its long term expected return range.
For more detail, in the summer of 2018 the market traded at approximately 2800. The long term average returns for US equities is 7-10%. If you assume a 7-10% return per year for the S&P 500 since 2018, the S&P 500 is currently in line with this range of ~3600-4000.
While the volatility isn't fun, the good news from here is that statistics would suggest a positive return over the next 12 months from here.
Of course, these are just statistics and the market can be affected by drastic changes in economics, war, or even public policy (think tax rates). However, we find it helpful to take a long term view at times.

Are there opportunities in Small Cap? - Yes, we believe!

After the recent sell-off, the Russell 2000 index has now traded back to levels flat with 2018 over 4 years ago.
We believe small and medium sized companies generally create meaningful innovation and economic development for our economy.
We feel this entry point could be attractive for long-term minded investors.
Look to our newsletter for more detail on targeted opportunities, which is the best way to invest in small cap.

Source: All market data per Bloomberg as of 6/22/22; Retailer Index represented by RTH; Earnings and Cash Flow Yields based on company results and The Bycoff Group estimates.