Weekly stock market & economy recap

S&P 500 earnings update

S&P 500 earnings per share (EPS) increased to $206.88 this week. The forward EPS is now +30.1% year to date.

Q2 earnings are over. 88% of companies beat earnings expectations, and results came in a combined +15.8% above expectations. Total Q2 earnings growth was +95.6%. (I/B/E/S data from Refinitiv)

The S&P 500 index declined -1.69% this week.

S&P 500 price to earnings (PE) ratio fell to 21.6.

S&P 500 earnings yield increased to 4.64%, which still compares favorably to the current 10 year treasury bond rate of 1.34%.

Economic data review

Producer Price Index (PPI) increased +0.7% for the month of August, and is now +8.3% over the last 12 months. This is the highest level of annualized producer price inflation since the dataset began November 2010. Still no signs of “transitory” inflation.

Chart of the week

The Job Openings & Labor Turnover Survey (JOLTS) was released this week, showing an increase of +749K job openings in July (one month lag). There are now 10.39 million job openings across the US, which the above chart puts this into perspective, compared to the currently 8.38 million people aged 16 & older who are unemployed. This makes roughly 2.6 million job openings more than the entire unemployed population.

We are currently 5.3 million net job gains below the pre-COVID high point. So current openings are roughly double that amount. We should be encouraged by this, as it shows the potential for strong gains ahead.

Summary: A holiday shortened week with little earnings and economic data, investors used the opportunity to take some profits. Perhaps the biggest news of the week was the European Central Bank (ECB) announcement that they would begin reducing its asset purchase program. Along with several Fed voting members voicing support for the US central bank to also begin reducing asset purchases sooner rather than later.

I’ve said numerous times before, investors shouldn’t fear a modest pivot in policy. This is not “tightening” monetary policy, its best described as being “less accommodative”. The above chart puts this into perspective, with every major developed countries bond rates currently yielding below the rate of inflation (negative real yields). It’s better to see them take small incremental steps to reverse policy now, then risk falling behind and then having to tighten policy in a dramatic fashion.

While earnings and interest rates ultimately drive stock prices, sentiment and liquidity conditions can have temporary effects. The above chart is an update to the potential bearish divergence I’ve been monitoring for awhile. The top part of the chart shows the New York Stock Exchange advance/decline line. The bottom part of the chart shows the S&P 500 index. While the S&P 500 has been making new highs up until last week, the advance/decline line topped out in June. Which means less stocks have been participating in these rallies, a potential sign of short term exhaustion. Much like the Fed removing emergency stimulus, a market correction to the vicinity of the 50 week moving average shouldn’t be feared. It would be perfectly normal and healthy, should it occur.

Next week: It’s a quiet week for earnings, with only 2 S&P 500 companies reporting. For economic data, we have the small business optimism index & consumer price index (CPI) on Tuesday, Industrial production on Wednesday, and retail sales on Thursday.

Weekly stock market & economy recap

S&P 500 earnings update

S&P 500 earnings per share (EPS) declined from $206.77 to $206.75 this week. A very modest decline, but it had been 22 straight weeks of EPS increases. The forward EPS is +30.02% year to date.

99.4% of S&P 500 companies have now reported Q2 results. 88% have beaten estimates and results have come in a combined +15.8% above expectations. Q2 EPS growth rate is now +95.6%. (I/B/E/S data from Refinitiv)

The S&P 500 index increased +0.58% this week, for yet another record close.

S&P 500 price to earnings (PE) ratio increased to 21.9.

S&P 500 earnings yield is now 4.56%, compared to the 10 year treasury bond rate of 1.32%.

Economic data review

Consumer confidence declined in August, coming in at 113.8 (down -9% for the month, but +31.9% over the last 12 months), which was well below expectations. July was revised lower as well, from 129.1 to 125.1.

“Consumer confidence retreated in August to its lowest level since February 2021 (95.2). Concerns about the Delta variant—and, to a lesser degree, rising gas and food prices—resulted in a less favorable view of current economic conditions and short-term growth prospects. Spending intentions for homes, autos, and major appliances all cooled somewhat; however, the percentage of consumers intending to take a vacation in the next six months continued to climb. While the resurgence of COVID-19 and inflation concerns have dampened confidence, it is too soon to conclude this decline will result in consumers significantly curtailing their spending in the months ahead.”

17.8% expect business conditions to worsen in the next 6 months (up from 11.9% last month), while 22.9% expect business conditions to improve in the next 6 months (down from 30.9%). The short term labor market outlook deteriorated slightly, while short term financial prospects showed a modest decline as well.

ISM Manufacturing Purchasing Managers Index (PMI) for August came in at 59.9, the 15th consecutive month in expansion territory. All 6 of the biggest manufacturing industries registered moderate to strong growth for the month.

“Manufacturing performed well for the 15th straight month, with demand, consumption and inputs registering month-over-month growth, in spite of unprecedented obstacles. Panelists’ companies and their supply chains continue to struggle to respond to strong demand due to difficulties in hiring and a clear cycle of labor turnover as workers opt for more attractive job conditions. Disruptions from COVID-19, primarily in Southeast Asia, are having dramatic impacts on many industry sectors. Ports congestion in China continues to be a headwind as transportation networks remain stressed. Demand remains at strong levels, despite increased prices for nearly everything.”

New orders increased +1.8% to 66.7%.

While input costs actually declined 6.3% to 79.4%. Which means costs are still increasing, but at a slower pace. But its the first monthly reading below 80% since December 2020.

ISM Services Purchasing Managers Index (PMI) for August came in at 61.7, the 15th straight month in expansion territory.

“According to the Services PMI®, 17 services industries reported growth. The composite index indicated growth for the 15th consecutive month after a two-month contraction in April and May 2020. There was a pullback in the rate of expansion in the month of August; however, growth remains strong for the services sector. The tight labor market, materials shortages, inflation and logistics issues continue to cause capacity constraints.”

New orders came in at 63.2, down from 63.7 last month, but still well in growth territory.

Prices (or input costs) continue to rise, but the pace of the advance is moderating. The prices index came in at 75.4, down from 82.3 last month.

The BLS monthly labor report missed expectations, with a net gain of +235K jobs in August (street was expecting around 720K). There were some bright spots, net job gains for June were revised higher (from +938K to +962K), and July was revised higher as well (from +943K to +1,053K), for a net of +134K job gains higher than previously reported. Total private payrolls increased +243K.

We have now recovered 76.4% of the job losses due to COVID, but still remain a net 5.333 million jobs below the pre-COVID peak. Monthly job gains have averaged +586K this year. If this pace were to continue, a full jobs recovery would occur in a little over 9 months (May 2022).

Wage inflation was evident. Average hourly earnings +0.6% for the month (from $30.56 to $30.73). More on this in the summary section.

Notable earnings

Docusign (DOCU) reported another strong quarter with adjusted EPS coming in at $0.47, +18% above expectations and +176% growth.

Quarterly revenue came in +5% above expectations, for a +50% growth rate. Subscription revenue grew 52%. The company has now reported $2.137 billion in sales over the last 4 quarters (TTM). They projected around 40% sales growth next quarter, 45% sales growth for the full fiscal year.

Gross margins increased from 74% to 78% for the quarter, while operating margins improved from -17.1% to -4%. TTM operating margins are now -7.7%, which is the best its been since going public. It looks like Docusign is on its way to becoming GAAP profitable next year.

Free cash flow grew +62% for the quarter, led by a +50% gain in operating cash flow. The company has now reported almost $500 million in free cash flow over the last 4 quarters.

Strong results plus forward guidance well above expectations. This report checked all the boxes. The strength in international sales was most impressive (+71% growth, now 22% of total revenue). Also the company’s customer count now exceeds 1 million. I don’t see this as just a “COVID” stock. People want convenience and Docusign provides that.

The stock may have broken out from a year trading range. At 33x sales and 137x cash flow, the stock is not cheap by any means. However, I actually added to the position after earnings results with the understanding the stock could fall back within the prior trading range.

Chart of the week

Historic Q2 earnings growth is a global phenomenon. In the US, Q2 earnings growth is now coming in at +95%. But in other parts of the world, earnings are growing even faster. The above chart shows the Q2 growth rate for the STOXX600, which is the index for Europe, coming in at +248%. Foreign stocks have lagged US stocks have a long time, but for investors with extra cash and worried about US stock valuations, foreign stocks may be a good place to turn. They could very well continue to lag US stocks, but they currently offer higher dividend yields and lower PE ratios.

Summary: No problems on the earnings side. Companies continue to report stellar results, and beat market expectations. The economic data was mixed, with the ISM Services & Manufacturing continuing to show the economy is bouncing back strong despite the supply chain issues. But the consumer confidence and jobs report shows signs that economic growth could moderate a bit more than expected. But its still too soon to tell. And as I’ve highlighted numerous times, its against the backdrop of strong earnings, record low interest rates, and fiscal/monetary stimulus.

In regards to the BLS labor report, market participants are going to look through the report and speculate on the Fed’s next move. The Fed is in a bind, the net job gains were well below expectations (which could give them room to delay “tapering” plans), but the wage inflation was clear. IMO, they really should start reducing their bond buying program ASAP. It’s low hanging fruit. Yes the market could have a short term negative reaction, but they will get over it. Interest rates will still be at 0%. They really don’t want to risk getting behind this. Inflation could be transitory, but so far there is little to no data that shows a return to normalized inflation rates. The FOMC event in a few weeks will be important. Not just for the statement, but for the updated projections on interest rates and the economy.

Next week: A holiday shortened week. Only 2 S&P 500 companies reporting earnings. For economic data we have the Producer Price Index (PPI) on Friday.

Weekly stock market & economy recap

S&P 500 earnings update

S&P 500 earnings per share (EPS) increased to $206.77 this week. The forward EPS is now +30.03% year to date.

97.8% of S&P 500 companies have now reported Q2 results. 88% have beaten estimates, and results have come in a combined 15.9% above expectations. The Q2 earnings growth rate is now +97.8%. (I/B/E/S data from Refinitiv)

The S&P 500 index increased +1.52% for the week.

S&P 500 price to earnings (PE) ratio increased to 21.8.

S&P 500 earnings yield is now 4.59%, compared to the current 10 year treasury bond rate of 1.31%.

Economic data review

Existing home sales for July came in at 5.99 million, +2% over the prior month and +1.5% over the last 12 months.

“We see inventory beginning to tick up, which will lessen the intensity of multiple offers. Much of the home sales growth is still occurring in the upper-end markets, while the mid- to lower-tier areas aren’t seeing as much growth because there are still too few starter homes available.”

Months of supply in single family homes ticked up from 2.3 to 2.5, but down from 3.6 at this time last year.

“Although we shouldn’t expect to see home prices drop in the coming months, there is a chance that they will level off as inventory continues to gradually improve. In the meantime, some prospective buyers who are priced out are raising the demand for rental homes and thereby pushing up the rental rates.”

The median sales price of existing homes fell from $362,800 in June, to $359,900 in July. A decline of -0.8% for the month, and the first monthly decline in prices since January, but prices are still up +17.8% over the last 12 months.

New home sales for July came in at 708K, +1% higher than last month (revised up to 701K), down -27.2% over the last 12 months. Monthly declines were led by the Northeast (-24.1%) and Midwest (-20.2%). High prices and lean inventories are starting to take their toll. More on this in the summary section.

The median sales price for new homes increased from $370,200 to $390,500 in July, a gain of 5.5% for the month and prices are up 18.4% over the last 12 months.

Astute readers have asked why I only paying attention to new home sales since its only a small subsection of the housing market. The reason is that new home sales has historically been a better leading indicator for the economy. The purpose of this blog is to take an objective look at the state of the whole economy (along with corporate earnings), as opposed to just the housing market itself. And new home sales has historically been the better of the two in that regard. But I will include existing sales data from now on, so we can all follow along in real time.

Second estimate of Q2 Gross Domestic Product (GDP) came in at an annualized growth rate of 6.6%, which was higher than the first estimate that came in at +6.5%. Real GDP is now +0.82% above the prior high.

Personal Consumption Expenditures minus food and energy (Core PCE) increased 0.3% in July, down from +0.5% in June. The annualized Core PCE remains unchanged from last month, at +3.6%. Core PCE is the Fed’s preferred data point on inflation. At least there wasn’t an increase in the annualized inflation rate, which is a win based on the last few months, but a +3.6% annualized Core PCE is still higher than anything we have experienced since the early 1990’s.

Real personal income minus transfer payments increased +0.23% in July, and up +3.82% over the last 12 months. This data point is now only 0.17% away from the pre-COVID high.

Corporate profits soared to a new all time high in Q2, coming in at $2.785 trillion. This represents a growth rate of +9.2% over Q1 and +43.4% over Q1 2020.

Notable earnings

Accounting software provider Intuit (INTU) reported another strong quarter, with adjusted EPS coming in at $1.97, +24% above street expectations and +9% growth rate. Gross margins improved by 34 basis points, but SG&A expenses increased 81.4%, pushing operating margins down from 26.6% to 15.7%.

Quarterly revenues came in +11% above street expectations, for a growth rate of +41%. The Credit Karma acquisition accounted for a large part of that growth rate, while small business & self employed group revenues grew 30%. The company has now reported $9.633 billion in total sales over the last four quarters – trailing twelve months (TTM).

Intuit raised forward guidance, and the recent strategic moves made will only stabilize future cash flows. The stock is another long term core holding for me, but the current stock price doesn’t seem to offer an attractive entry point. Currently trading 53x forward earnings and 16x sales, and it’s already up +40% this year alone. The stock has a pattern of correcting in the range of 15-20%. I will be looking to add to positions if that were to occur.

Chart of the week

This weeks chart comes courtesy of Charles Schwab. The S&P 500 has now gone 200 trading days without a 5% pullback. This has only happened 7 days since the S&P transitioned to 500 stocks in 1957.

They go on to throw some cold water on this feat by highlighting the markets performance afterwards. The average drawdown was -14% (corrections typically fall in the 5-15% range), the average gain one year later was +7.2%, but this is skewed by the +41.9% gain after the 1996 rally. The median gain 1 year later was only +2.6% and the market was higher 1 year later only 43% of the time.

Check out the full post here if you are interested. They also take note of the deteriorating advance/decline line, which was something I highlighted last week.

Summary: This was a big week for monetary policy. Fed Chair Powell, in his speech on Friday, punted on laying out a time table for “tapering” the bond buying program. And highlighted that even if the committee announces tapering plans, it still remains far from meeting the criteria for raising interest rates. The market apparently loved the overall dovish tone of the speech. I still expect tapering to begin by years end, but this shouldn’t be feared by investors. Financial market liquidity was a problem at the height of the COVID shutdowns, but its no longer the case. In fact, you can make the argument that there is too much liquidity in the system, and the Fed should begin unwinding sooner rather than later.

The key economic data point making headlines this week was new home sales. Although we saw a monthly uptick for the 1st time since March, the -27% year over year decline is something we typically only see during recessions. A result of low supply and high prices. Inventories are increasing, but currently much of that consists of homes that aren’t yet completed, which won’t help the immediate problem. Expect the COVID restrictions to continue to hinder progress in the near term but this is not a demand problem. Looking ahead, as more supply comes online, new home sales should continue to grow, and price appreciation could moderate. I wouldn’t read too much into this.

It’s a perfect example of why you shouldn’t base an analysis on any one single data point. I use the legal term “preponderance of evidence”, which means the data as a whole, as opposed to “cherry picking” one or two data points that support a particular outlook or prediction. I see investors fall for this all the time. No two situations are ever alike. Basing analysis & investment decisions on one thing, even if it’s had a great track record in the past, is prone to failure.

Corporate profits have never been stronger, but I’m hearing talk about how earnings are only the result of financial engineering. It’s true, buybacks are getting back to pre-COVID levels and productivity has accelerated at a phenomenal pace. But this profit growth has legs. Let’s look at top line sales for the S&P 500, which everyone agrees, isn’t prone to financial engineering. The above chart shows 87% of S&P 500 companies have beaten estimates.

And results have come in almost 5% above street expectations. Which far surpasses anything we have seen in recent history. This is not a financial engineering story. The earnings yield on the S&P 500 remains almost triple what the 10 year treasury bond rate is, and earnings continue to beat expectations at a level we haven’t seen in a long time. A market correction could occur at anytime, but its hard to get ultra bearish in this environment. The Fed could be the only thing that messes this up, if they make a policy mistake. But for now, they seem to be doing everything they can to appease markets.

Next week: We have 9 S&P 500 companies reporting earnings. I’ll be paying attention to Zoom (ZM) on Monday, Crowdstrike (CRWD) on Tuesday, Veeva Systems (VEEV) on Wednesday, & Docusign (DOCU) on Thursday. For economic data, we have consumer confidence on Tuesday, ISM Manufacturing PMI on Wednesday, ISM Services PMI and the BLS employment report on Friday.

Weekly stock market & economy recap

S&P 500 earnings update

S&P 500 earnings per share (EPS) increased to $206.32 this week. The forward EPS is now +30% year to date.

95% of S&P 500 companies have now reported Q2 results, 87% have beaten estimates and results have come in a combined +15.8% above expectations. The Q2 earnings growth rate is now +94.7%. (I/B/E/S data from Refintiv)

The S&P 500 index declined 0.59% for the week.

S&P 500 price to earnings (PE) ratio is now 21.5, down from 21.7 last week due to an increase in earnings and decrease in price.

S&P 500 earnings yield is now 4.65%, compared to the 10 year treasury bond rate of 1.26%. Fixed income still offers no competition to stocks in terms of valuation. There are still those that focus only on the PE. If stocks are expensive, then bonds are ridiculously expensive. It’s all relative.

Economic data review

Total retail sales for July came in at $617.7 billion, a decrease of -1.1% for the month, but still up +15.8% over the last 12 months and +17.5% above the pre-COVID high. June was revised higher, to +0.7%.

The monthly decrease was led by motor vehicle & parts dealers (-4.1%), nonstore retail-ecommerce (-3.1% month), and clothing (-2.7% month). The biggest gains came in the miscellaneous store retailers (+3.4%), gasoline (+2.3%), & food service and drinking (+1.7%).

Industrial production increased +0.9% in July, and +6.6% over the last 12 months. Capacity utilization increased from 75.4% to 76.1%. Industrial production has now recovered 98.8% of the COVID losses.

Conference Board Leading Economic Index (LEI) increased a better than expected +0.9% in July, now at 116. June was revised down from 115.1 to 115, while May was revised up from 114.3 to 114.4.

“The U.S. LEI registered another large gain in July, with all components contributing positively. The Leading Index’s
overall upward trend, which started with the end of the pandemic-induced recession in April 2020, is consistent with strong economic growth in the second half of the year. While the Delta variant and/or rising inflation fears could create headwinds for the US economy in the near term, we expect real GDP growth for 2021 to reach 6.0 percent year-over-year, before easing to a still robust 4.0 percent growth rate for 2022.”

The LEI is now +10.6% higher over the last 12 months, and +5.4% over the last 6 months. Well in growth territory.

Notable earnings

Nvidia (NVDA) reported another strong quarter. Adjusted EPS came in +13.3% above expectations, for a growth rate of +280%. Gross margins came in at 64.8%, which was an improvement both sequentially and year over year. Operating income grew +275% on a GAAP basis. The company projected sales growth of 44% for Q3, with further margin expansion.

Nvidia reported quarterly sales of $6.5 billion, a growth rate of 68% and 3% above expectations. There was strong growth along all product lines, with record revenue for gaming (+85% growth) and data center (+35% growth).

This makes $21.9 billion in sales over the last 4 quarters, or trailing twelve months (TTM).

TTM revenue growth rate is now +67.6%.

Operating cash flow over the last 4 quarters has now soared to a company record $7.9 billion.

The stock trades about 51x forward earnings and 25x sales, so its far from cheap but not quite as expensive as The Trade Desk either. Maintaining a full position in the company, they are obviously killing it and poised for further growth. I’d add to the position if price ever fell to the $160 area, about a 25% decline from most recent highs.

Chart of the week

The S&P 500 doubled from the March 2020 low point in a record 354 trading days. This is the fastest recovery in the post WWII era. It goes to show what strong earnings, low rates, and government stimulus can do. The COVID recession was different in a lot of ways. It wasn’t a result of overinvestment, it was a product of self imposed shutdowns. But you simply can’t turn an economy off and on like a light switch. We are dealing with the repercussions now, as supply chains are damaged and inflation is the result.

Summary: The economic data this week was mixed. Retail sales came in below expectations, but industrial production and the LEI came in better. Earnings continue to increase and rates remain low. The Jackson Hole Symposium will be the main event next week. It will be interesting to see what comes out of the Symposium, and it will also be interesting to see how the market reacts to whatever comes out. I have zero interest in trying to predict what may happen. I’d rather just react to whatever the market gives me. If the market freaks out about the bond buying reduction plans, just remember that they are doing it because the economy is on solid footing.

I am monitoring a minor bearish divergence on the New York Stock Exchange advance/decline line (chart above). While the S&P 500 had been making new record highs up until this week, the advance/decline line has made no progress since June; making lower highs in succession. It’s too early to tell whether this is a sign of exhaustion or consolidation for the next leg higher.

Perhaps market participants are on hold, waiting to hear what comes out of the Jackson Hole Symposium. Next week could be the determining factor for the markets next move. If this is the start of the long awaited, perfectly normal and healthy (and much needed IMO) pullback, get your shopping list ready. Otherwise, enjoy the ride.

Next week: We have 13 S&P 500 companies reporting earnings. I’ll be paying attention to Intuit (INTU) on Tuesday and Salesforce (CRM) on Wednesday. For economic data, we have new home sales on Tuesday, our second look at Q2 GDP on Thursday, Personal income & Core PCE inflation reading on Friday. The Jackson Hole Symposium will begin Thursday, and extend through Saturday.

Weekly stock market & economy recap

S&P 500 earnings update

S&P 500 earnings per share (EPS) increased to $205.89 this week. The forward EPS is now +29.5% year to date.

91.4% of S&P 500 companies have now reported Q2 results. 87% have beaten estimates, and results have come in a combined +16.4% above expectations. Q2 EPS growth is now +93.8%. (I/B/E/S data from Refinitiv)

The S&P 500 increased +0.71% for the week, for yet another record.

S&P 500 price to earnings (PE) ratio is now 21.7.

S&P 500 earnings yield is now 4.61%, with a dividend yield of 1.30%, compared to the 10 year treasury bond rate of 1.297%. The equity risk premium remains a healthy 3.31%.

Economic data review

NFIB small business optimism index decreased to 99.7 in July, down -2.7% for the month, +0.9% over the last 12 months. 6 of the 10 index components declined for the month. The index remains above its historical average of 98.4.

“Small business owners are losing confidence in the strength of the economy and expect a slowdown in job creation. As owners look for qualified workers, they are also reporting that supply chain disruptions are having an impact on their businesses. Ultimately, owners could sell more if they could acquire more supplies and inventories from their supply chains.”

The same dynamics remain in place, half of all small businesses are now reporting at least one unfilled position, while plans to fill open positions also remain near a record high. If you’re ever going to have a problem, I guess this is the best problem to have. I suspect some relief is in sight with unemployment benefits set to expire next month.

Compensation remains near a record high and 27% plan to raise compensation in the next 3 months (near a 48 year high). Price increases and plans to increase prices remain near a 40 year high. Small business owners report their biggest problems remain quality of labor, taxes, regulations, & inflation.

Overall, it was a slight disappointment but I think a lot of these issues have already been accepted and discounted.

Consumer Price Index (CPI) increased +0.5% in July, for an annualized rate of +5.3% (unchanged from +5.3% last month). The biggest contributors coming from fuel & gasoline (+2.4% for the month, +41% for the last 12 months), energy services (+8% for the month, +7.2% over the last 12 months), and food (+0.7% for the month, +3.4% over the last 12 months).

Consumer Price Index minus food & energy (Core CPI) rose +0.3% in July, +4.2% annualized (down from +4.45% last month). New vehicles rose +1.7% for the month, +6.4% over the last 12 months. Used cars and trucks rose +0.2% for the month (down from +10.5% last month), but still up a whopping +41.7% over the last 12 months.

CPI and Core CPI remain well above the historical averages and I don’t think that will change significantly anytime soon. But at least we had a pause in the annualized growth rate, and that may be taken as minor victory in comparison to what we’ve seen over the last 6 months or so.

Producer Price Index (PPI) increased +1.0% in July, +7.8% over the last 12 months (up from +7.3% last month). The data set only goes back to November 2010, so we can’t put this into a historical context. But its clear we’ve never seen anything quite like this in the last 10 years. Expect producers to pass on those extra costs to consumers, which will spill over into the CPI. No significant relief on inflation in sight.

Notable earnings

The Trade Desk (TTD) reported adjusted EPS of $0.18, +96% growth and +38.5% above street expectations. Gross margins and operating margins improved dramatically, with gross margins coming in at 82%, and operating margins coming in at 22%.

Sales grew 101% (+7% above street expectations) year over year and 27% sequentially. Customer retention rate remains over 95% for 7 years now. Which means 95% of customers that use the service end up staying.

The company broke the $1 billion mark in sales reported over the last 4 quarters (trailing twelve months). TTM revenue growth is now +52% and +16 sequentially.

The Trade Desk has now reported $282 million in earnings before interest/taxes/depreciation/amortization (EBITDA) over the last 4 quarters.

Gross profit margins are near a company record at 81%. Operating margins continue to improve, now above 21%.

I love the company, but hate the current valuation. The stock trades 127x forward earnings and 39x sales. It was a $10 stock a few years ago, now trading around $85. Needless to say, a lot of good news is already priced in. I maintain a half position in the company. Due to its operational excellence, I want some skin in the game. If the stock were to fall to the $40-$50 range, I would go to a full position. That’s almost 50% lower than current prices, which reflects how overvalued this stock could potentially be. But valuation isn’t a timing tool. Stocks can remain overvalued for a long time, until they eventually grow into those earnings or fail.

Chart of the week

France’s stock index (CAC 40) is up +39% year to date, more than double the S&P 500. The index finally broke out above its year 2000 high. There are many benefits to global diversification. The laggards eventually turn into the leaders, and vice versa. You’ll never time the transition with any consistency. Just go along for the ride.

France makes up about 5-8% of the total international stock index funds, and 10-15% of the developed international stock index funds.

Summary: The market continues to overlook the COVID related disruptions. There are now 10 million job openings nationwide, a record, with half of all small businesses reporting at least one unfilled position. This means there is more room for improvement. With an earnings yield more than triple the treasury bond rate, it doesn’t take much for stocks to continue their upward path. I would still like to see a pullback in the vicinity of the 50 week moving average. It would be healthy, but impossible to time.

With Q2 earnings mostly behind us, all eyes will be on the Jackson Hole Symposium in two weeks. Where the Fed could lay the framework for reducing its bond buying program. There is no need for the Fed to maintain crisis level stimulus. And the more they wait, they risk falling behind. With the cost of capital effectively 0%, investors are willing to bet on companies that may not turn profitable for 5 or more years (if ever). Needless to say there is a lot of speculative money in the markets. And those areas could be most at risk when the Fed eventually reverses course. The market is always forward looking, so its better to prepare ahead of time. If your invested heavily in those high growth names with no earnings, it may be a good time to diversify. There are a lot of stocks that are going up for the wrong reasons.

Next week: There will be 18 S&P 500 companies reporting earnings. I’ll be paying attention to Home Depot (HD) on Tuesday, Nvidia (NVDA) on Wednesday, and Applied Materials (AMAT) on Thursday. For economic data, we have retail sales and industrial production on Tuesday, and the Conference Board’s leading economic index (LEI) on Thursday.