scanning for bad weather

There’s something oddly passive about being a professional investor.  After all, you can’t call your stocks into your office and give them a pep talk about living up to their potential if they’re performing badly.

I’ve often described my old profession as like being in a small boat in the open sea.  You can chart a course and take in or let out sail. But when a big storm comes up on the horizon headed your way, you basically have to take whatever Nature gives you and ride out the trouble as best you can.

As a result, you’re always scanning for potential bad weather.

what storm clouds?

What’s striking about today’s global stock market is that lots of potential storm clouds have suddenly dissipated.

–Greece appears to be solved in a much better fashion than I’d ever dreamed,

–the US has a nuclear deal with Iran

–the Chinese stock markets have stabilized and Beijing is pursuing illegal short-sellers with a vengeance

–Janet Yellen is saying she’s sensing that wages in the US are finally beginning to pick up.

–yes, this last means interest rates are going to begin to rise before yearend.  But the Fed has made it clear that we’re likely going to leave the land of unnaturally low interest rates over several years, not months.

what’s left to worry about

To my mind, this leaves two more mundane concerns for us as investors:

–valuation, and

–the current earnings reporting season.

On the second front, FactSet has recently written that the fewest companies have pre-announced weak quarterly earnings in several years.  In addition, FS says that of the 25 or so firms who have already reported, about half have had higher than expected revenues and/or earnings.  The single economic headwind mentioned has been the strength of the dollar.

So on the earnings front, so far, so good.  (Oil companies are doubtless going to report ugly year-on-year comparisons.  It’s hard to believe that in a commodity natural resources business, however, that the market hasn’t figured this one out already–especially when every gas station in town shows the current state of affairs in bright neon every day.)

For me as an investor used to scanning for potential trouble, it’s a bit eerie to say, but it looks for a while like we can sit back and enjoy the ride.

I’ll write about valuation tomorrow.