Mike Lipper’s Monday Morning Musings
Expectations Changing?
Editors: Frank Harrison 1997-2018, Hylton Phillips-Page 2018
The Main Motivator They Don’t Teach
Fear is the main motivator they don’t teach you about in pre-kindergarten
through Ph. D studies. Primarily, this list is comprised of what can go wrong
and what will hurt you, such as going broke, losing a job, or being defrauded. Discussions
are informative but not particularly action oriented. What would be useful is a
list of expectations, and of prime importance how to recognize them and what to
do. These are life lessons which we all need but are not taught.
Each of us has our own level of awareness of critical
expectations and we are aware of the changes in them. While all aspects of
human life are open to change, I am going to focus on the expectations which impact
our investment realities. These expectations are easier because they deal in
large part with numbers. Numbers, like prices or earnings per share, are
precise but mean different things to different people at different times.
The difficult part of dealing with expectations is identifying
when they change and by how much. For example, a stock price expectation
between $103 and $98, or an earnings per share expectation between $0.67 and $0.70.
The critical issue is how early, or late investor expectations begin to evolve compared
to others. Being early or late is often more impactful than being right or
wrong?
Are We Changing Expectations?
A recent January survey of institutional investors had 50%
expecting stock prices to rise, 39% expecting prices to be stable and 10% expecting
prices to fall. An American Association of Individual Investors (AAII) six-month
sample survey of investor expectations found 33.2% bullish and 32.9% bearish.
Three weeks ago, both groups were about equally sure at 38%.
For the week ended Friday, more stocks fell on the NYSE and
NASDAQ than rose (NYSE 56% and NASDAQ 53%, respectively). Normally slow-moving
industrial commodity prices rose to123.06% from 121.92% the week before.
Most important of all, the US and Israel bombed Iran on
Friday night. (The timing of the attack was a surprise to most, although the US
has been building up its military and Naval forces in the Middle East
recently.)
For some time, large companies in the US have not replaced
retiring workers with new hires. We will see in the coming week if there is a
large change in market expectations and whether that change in expectations is
long-lasting.
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