Mike Lipper’s Monday Morning Musings
Analyst Calendar: Preparation for 2026
Editors: Frank Harrison 1997-2018, Hylton Phillips-Page 2018
Analysts should attempt to get ahead of the stock market.
Starting next Tuesday, we are entering the second half of 2025. Using the performance
of Large-Cap US Diversified Mutual Funds as a broad indicator of the experience
of US investors, the first quarter of 2025 was relatively strong, but April’s
second half was weak. Perhaps it was due to concerns about taxes, tariffs, and
international turmoil. The Market slumped into June, then recovered through the
final four weeks of the quarter, bringing average performance back to
mid-single digit gains, with half in the last week, despite a 9% decline in the
value of the dollar. Not a great foundation for the continuation of two 20%
gaining years.
Starting next week, analysts will quietly begin gathering
their thoughts on preparing forecasts for the next calendar year. For the most
part they will not have the benefit of the proclaimed or quietly guided company
estimates. The estimate for 2026 will be more difficult than prior years. Not
only will there be comparisons of two 20% plus years, but it is also unclear
what taxes, tariffs, and the value of the US dollar are likely to be. There are
two other quandaries that should be addressed. We have entered a period where there
is a shortage of necessary talent at companies. For tech companies there is a
struggle to find AI personnel at prices approaching Wall Street levels. Industrial
and service companies have approximately 400,000 open positions, despite many announcing
plans to lay-off workers. To some degree, this speaks to the quality of present
workers and their attitudes.
Another concern is the level of IPOs threatening private
equity portfolios with unattractive opportunities to sell some of their
holdings. These sales are necessary to raise sufficient cash to pay the dividends
expected by present holders and retail buyers. Private markets could contract quickly,
constricting private securities firms. An investment trend is normally near the
end of its popularity when it becomes dependent on retail buyers.
The answers to these questions may not be determined in the
third quarter. Even though the fourth quarter is the second highest selling
period of the year, it may not provide quick answers for marketing forces expected
to produce results.
It is possible the market may be saved through efforts in
the unofficial “fifth quarter”, which can deliver either surprisingly good
numbers or poor ones, setting up a splurge in the first quarter of 2026. These
will rely on the increasingly popular “adjusted” sales and earnings per share numbers
created through skilled accounting approaches. These are often approved by the
firms’ accountants and are not objected to by the regulators.
The problem with this exercise is that it makes the
following year more difficult for analysts and investors to understand the base
for the real earnings power of the company next year.
Buyers be thoughtful.
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