The incessant fire hose of macro data is confusing professional and retail investors alike. That is why we advocate to instead to focus on the microeconomic, bottom-up factors, or more simply, the fundamentals. The fundamentals are the A, B, Cs of investing. Let’s look at a current reading of the ABCs to show you what I mean, how simple it is and how the clarity is only surpassed by its insight.
A — advancing corporate earnings of the S&P 500 for the last six quarters have been positive. So far in the second quarter of 2022, with 356 of 500 companies reporting actual earnings, the year-over-year earnings growth rate is 8.4%, blowing away expectations of 5.6% as recently as July 1.
B — broadening manufacturing, as indicated by the ISM U.S. manufacturing and services indexes. Currently, the ISM manufacturing index has stabilized, ticking down to 52.8, but still indicates expansion. ISM services bounced to 56.7 in July, breaking a downward trend and consistent with our annual forecast of continued strength in services. Manufacturing is one of the biggest drivers of capital equipment purchases — a big component of GDP.
C — consumer spending, is once again a gamechanger by defying calls for its demise. The June U.S. retail sales figure was a blockbuster with a record high of $680.6 billion. Consumer spending is nearly 70% of the economy, so where the consumer goes the economy goes.
For more in-depth analysis on my call for a resilient market based on, you guessed it, the ABCs, please review my recent mid-year outlook: Mid-Year Outlook: Market Resilience