What to make of the last three months? Stocks hit a peak for the year on April 23rd with a YTD gain of 9.8%. Over the next 10 weeks, stocks fell 15.6%. Over the last week, stocks gained 7.2%, leaving stocks down 0.7% on the year (all returns calculated on the S&P 500, including dividends.) Net, our clients are nauseous! We think stocks should reasonably grow 8%/year, but staying the course is tough when stocks rise or fall 1-3%/day.
Investors in recent years have been trained to react (and over-react) to every bit of daily data. In our opinion, three months is the smallest useful unit of time for evaluating stock investments. Why? Corporations only report revenues and earnings once every three months. The data that comes out along the way may be useful in tuning your analysis, but why would you buy a stock at 10AM and sell at 3PM if you truly were an investor. (If you're a trader, short term buys and sells are the norm, but in the current environment, you'll probably be eaten alive.)
80% of earnings reports are delivered starting in the second weeks of January, April, July and October, which means most companies are blacked out on news in the proceeding 4 weeks. Occasionally, you'll get pre-announcements about earnings, which are generally negative. So we have learned to gauge the upcoming earnings reports based on the volume of negative pre-announcements. In March 2010, pre-announcements were few, and April earnings reports generally exceeded expectations. In June 2010, pre-announcements were mostly positive, which contrasts sharply with the bearish "macro view" espoused by most analysts. Now we're a couple of days into earnings reports, and Intel just released the best quarter in entire 42 year history of the firm, with revenues and earnings exceeding forecasts, and with bullish guidance for the rest of the year.