It's The Earnings, Stupid

The next big stock market correction has been imminent for, well, months now? Every time the Dow or the Nasdaq rises and falls, more articles admonishing about the inevitable massive stock market 1929-type crash populate investors’ screens.

Generation Investor Should Remain Optimistic 

Yes, of course, what goes up must come down—albeit even temporarily—as it has over the last couple of months. But what those Cassandras who’ve been calling for a real crash fail to appreciate the fact that, while workers would rather punt on going back to work as they wait for a better job (hence the massive labor shortage), whatever extra pennies they have are going to go into stocks. We now have (finally!) a more patient, cash-flush workforce—thanks to Uncle Sam. And they like to buy stocks. To wit, a recent Charles Schwab survey showed that 15% of current retail investors began investing in 2020. So significant is this statistic that the form is dubbing these newbie stock traders as “Generation Investor.”

And why not be a member of this generation? While inflationary worries persist, companies continue to post record earnings even in this imperfect, albeit improving, labor-desperate economy.

Beware of the Crash Cassandras

To wit, the S&P rose across all sectors Thursday morning. Some of the big gainers in household name companies were Walgreens Boots Alliance WBA, UnitedHealth Group UNH, Bank of America BAC, Citigroup C, and Morgan Stanley MS. While the latter three bank stocks rose on a reported jump in third-quarter profits, Walgreens and UnitedHealth rose on a jump in revenue and a brighter outlook.

So why shouldn’t they invest in them? Because of problems with China? Because of Covid-19? Because of political gridlock? Because of Jon Gruden’s emails?

The fact is, these companies keep churning out profits and growing, so their stocks should keep rising. Pandemic, schmendemic: One day we will all go to Walgreens (or CVS) for all our food, makeup, and medical needs—the latter will all be covered (poorly, I might add) by companies like UnitedHealth. Anyway, the point is, do not be afraid to buy these big stocks: They still have upside.

No, there will be no major, earth-shattering crash any time soon, short of any catastrophic event. And should there be, I would use the opportunity to buy U.S. equities, particularly these great companies that just seem to keep making money no matter what the heck happens. As the pandemic has taught us, washing your hands is a good thing, but washing your hands of the market is not.

So, keep an eye on the earnings calendar and buy before these big, growing companies post. If you’re wrong and the stock falls, you can hold long term. If they bounce a few percent on a beat, take some profits in case the Crash Cassandras end up being right after all.