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Making sense of the markets this week: September 25


General Mills (GIS/NYSE) put out a more upbeat earnings call, as the food conglomerate posted an earnings per share beat of USD$1.11 (versus $0.99 predicted). With shares up nearly 6% on the day, and 11% YTD, the experts who advocated playing it safe with consumer staples are looking pretty smart on this one. 

Despite Costco’s (COST/NASDAQ) earnings and revenue beat, the stock was down about 3% in after hours trading. This simply appears to be the result of very bearish sentiment when it comes to retailers at the moment. With earnings per share coming in at USD$4.20 (versus $4.17 predicted) and total revenues up 15% from last year, to USD$72.10 billion (versus USD$72.04 predicted) Costco is clearly benefiting from folks looking to shop in bulk as they fight inflationary cost raises. That said, the fly in the ointment was that the big-box giant was holding on to 26% more inventory than in past years.  

Markets may not be as panicked as headlines would indicate

Our favourite market chart Tweeter Liz Ann Sonders, was back at it again this week with an interesting look at investor behaviour.

By comparing the value of the S&P 500 index to the amount of investments that people are selling off (a.k.a. “drawdowns”), you get a sense of how long stock-market panics have lasted in the past, and just how drastic the recent downturn has been in a historical sense.

I find this chart interesting in that I would’ve expected the recent drawdown to be substantially higher, given all the terrifying headlines out there at the moment, like “ugly recession” and comparing 2022 to 2008. Investor sentiment is down, the dominant phrases we hear from the talking heads on TV are “recession” and “stagflation.” You could think—given all the pessimism, as well as the newfound attractiveness of GIC rates—that more investors would be selling off their equity portfolios in order to get ahead of the worst-case scenario.

I suspect that more and more investors are becoming wise to how irrational market timing is for the average investor. Vanguard and Fidelity data would support my hypothesis. The rise of passive investing via robo advisors, as well as all-in-one index ETFs will very likely reward buyers who automatically maintain their target asset allocation during these volatile times.

It has been said by those much smarter than me: “It’s not market timing that matters, it’s the time in the market.” And that’s for good reason. 

Kyle Prevost is a financial educator, author and speaker. When he’s not on a basketball court or in a boxing ring trying to recapture his youth, you can find him helping Canadians with their finances over at MillionDollarJourney.com and the Canadian Financial Summit.



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