Earnings season is here, plus postage stamps, CapEx tailwinds, and long-term trends
The Sandbox Daily (7.15.2024)
Welcome, Sandbox friends.
Argentina and Spain are celebrating after claiming titles for the Copa América and Euro Cup respectively, former president Donald Trump gains more support and election momentum after Saturday’s failed assassination attempt during a campaign event in Pennsylvania and today’s Vice President announcement of Ohio junior senator JD Vance, and crypto is roaring back in a BIG way.
Today’s Daily discusses:
Q2 earnings season is here
USPS stamps rise to 73 cents
two tailwinds supportive of CapEx growth
always be mindful of the long-term trend structure
Let’s dig in.
Markets in review
EQUITIES: Russell 2000 +1.80% | Dow +0.53% | S&P 500 +0.28% | Nasdaq 100 +0.27%
FIXED INCOME: Barclays Agg Bond -0.35% | High Yield +0.01% | 2yr UST 4.457% | 10yr UST 4.231%
COMMODITIES: Brent Crude -0.24% to $84.83/barrel. Gold +0.21% to $2,425.8/oz.
BITCOIN: +6.52% to $64,613
US DOLLAR INDEX: +0.15% to 104.248
CBOE EQUITY PUT/CALL RATIO: 0.57
VIX: +5.30% to 13.12
Quote of the day
“If we command our wealth, we shall be rich and free. If our wealth commands us, we are poor indeed.”
- Edmund Burke, British statesman and philosopher
Q2 earnings season is here
Earnings for the S&P 500 are projected to increase sequentially every quarter this year, with Q4 2024 EPS forecasted to be 15% above Q1.
This is well above the 8% median growth and 10% average growth historically for Q4 EPS compared to Q1.
The heart of 2Q24 earnings season is upon us over the course of the next 3 weeks, so these report cards from corporate America will drive the market narrative over the near-term. The overall tone should be positive, as the breadth of positive earnings should increase this quarter.
As Tony Dwyer often likes to say – over time, the market correlates to the direction of earnings (EPS). After a mild earnings recession from the Covid-19 pandemic, earnings expectations are trending higher and stocks are following suit.
Remember, the stock market is forward looking. The price you are willing to pay for a stock today is based on how well you and other investors expect the company to do in the future. This contrasts to economic activity, where most indicators and data are looking back at what has already happened.
The stock market and economy look in different directions.
Source: J.P. Morgan Markets
USPS stamps rise to 73 cents
The United States Postal Service is one of the few agencies explicitly authorized by the U.S. Constitution, holding a monopoly over the carriage of letter-mail, with records of the cost of sending letters dating all the way back to the 1800s.
In 1885, the cost to send a letter was just 2 cents an ounce. Today, the same privilege will set you back 73 cents, as the USPS raised the price of postage stamps for the 2nd time this year and 5th time in the last 24 months. This week’s 5 cent increase – from 68 cents to 73 cents – matches the record for the highest price hike ever.
For much of the last century, any hikes have broadly mirrored inflation, however, since 1958, the price of letter-sending has outstripped the wider CPI index.
The number of pieces of mail handled by the post office has been on the decline in recent years, as more people use online banking and send fewer physical cards. In 2023, USPS handled 116 billion pieces of mail, down substantially from 213 billion in 2006.
The Postal Service operated at a $6.5 billion loss in 2023.
Source: Axios, United States Postal Service
Two tailwinds supportive of CapEx growth
One meaningful tailwind that should support CapEx growth in the coming quarters comes in the form of easier lending standards.
Lending conditions for commercial and industrial loans have eased substantially since last year’s regional bank crisis. The net percentage of lenders reporting tighter lending standards has declined from the peak of 50% as the end of 2023 to 20% today for both small and large firms.
More normalized access to credit should provide a modest boost to investment growth in 2024.
Second, investment in data center facilities and hardware has nearly doubled in real terms since the launch of ChatGPT in the 4th quarter of 2022.
While investment in data centers had been gradually increasing before the pandemic, it has increased by over 80% since ChatGPT was introduced publicly.
Taken together, business investment outlook remains healthy despite some recent tailwinds fading (CHIPS Act, IRA subsidies, office sector supply glut, trade uncertainty).
Source: Goldman Sachs Global Investment Research
Always be mindful of the long-term trend structure
For long-term investors, it's important to understand the general direction of the underlying trend of the asset classes and markets for which you invest. Different tools and strategies can be employed by investors based on the type of environment we are in.
With respect to the S&P 500 index, as long as we're above the 200-day moving average (currently at 275 days and counting), the trend is your friend from the long side.
The 200-dma is trending higher ~73% of the time and produces an average annualized gain of +7.4%. Compare that to when stocks at the index level are trending lower, which occurs only ~27% of all rolling 200-day time periods and produces an average annualized return of -1.6%.
Source: Hi Mount Research
That’s all for today.
Blake
Welcome to The Sandbox Daily, a daily curation of relevant research at the intersection of markets, economics, and lifestyle. We are committed to delivering high-quality and timely content to help investors make sense of capital markets.
Blake Millard is the Director of Investments at Sandbox Financial Partners, a Registered Investment Advisor. All opinions expressed here are solely his opinion and do not express or reflect the opinion of Sandbox Financial Partners. This Substack channel is for informational purposes only and should not be construed as investment advice. The information and opinions provided within should not be taken as specific advice on the merits of any investment decision by the reader. Investors should conduct their own due diligence regarding the prospects of any security discussed herein based on such investors’ own review of publicly available information. Clients of Sandbox Financial Partners may maintain positions in the markets, indexes, corporations, and/or securities discussed within The Sandbox Daily. Any projections, market outlooks, or estimates stated here are forward looking statements and are inherently unreliable; they are based upon certain assumptions and should not be construed to be indicative of the actual events that will occur.