Why Stocks Could Drop 10% (Hint: Earnings)

Good afternoon ,

“I appreciate your daily insights and think you do a great job of keeping me abreast of what’s going on in the markets and providing actionable investment ideas. Thanks.” –  Kevin B, Raymond James Advisor.

That’s a note I got from a subscriber this morning – and while I always value feedback from our customers, knowing that our daily report is helping them navigate the most difficult environment since 2008/2009 is especially meaningful. 

This time last week, the S&P 500 was teetering on support at 1880 and threatening to potentially collapse, if the August lows didn’t hold.

Less than six trading days later, the S&P 500 has rallied more than 7% in a straight line and is now threatening to break resistance between 1990 and 2000.

With moves like that, it’s normal for even the most seasoned advisor to feel lost with regards to what’s driving this market and whether the news and resulting price action is just random noise, or a bearish or bullish game changer. 

And, we’ve seen an uptick in people subscribing because they’ve felt that way since the correction started in mid-August.

Since this correction started, we’ve found that the only way to cut through all the volatility and market noise is to monitor:

1) All asset classes,

2) Economic data, and

3) Central banks comments each and every trading day.

And that’s exactly what we do for our subscribers (successful advisors, RIAs and portfolio managers around the globe).

Our goal at The Sevens Report is to wake up each day and help our subscribers navigate these complex markets, and provide the best value in market analysis available today.

I created this report because I know that most financial advisors and professionals are not glued to blinking screens from 9:00 – 4:00 each day.

They are discussing the financial goals of their clients and mapping a financial course to reach those goals.  Most of their time is spent building and fostering relationships, not analyzing Fed commentary, studying the yield curve, or digging through an oil inventory report.

The most successful advisors use tools like the Sevens Report to stay ahead of the markets (stocks, bonds, currencies and commodities) and to make sure their clients are positioned to both outperform while also being protected from any financial “storm” that may blow up.

Specifically, we take complex macro-economic concepts (like ECB QE, Chinese economic policies, implication of rising interest rates, GDP reports, FOMC Statements, etc.) and tell you:

1) What you need to know,

2) What will move markets, and

3) What will make those events positive or negative for stocks and other asset classes. 

Every morning at 7AM we deliver this information, so you can show your clients you’re on top of the markets with a plan to outperform, regardless of the environment.

Q3 earnings season has started and it’s going to have a potentially substantial effect on stocks.  We are committed to making sure our subscribers know what to expect from this upcoming earnings season, and we’ve included an excerpt of that analysis for you today:

Valuation Worries Real As Earnings Start

Valuation in the market still matters, even in an investment age dominated by algorithms and where unprofitable bio-techs and internet stocks are market darlings.

Case in point, part of the reason stocks have been so volatile is because:

  • Corporate Earnings and overall market valuations are in flux and
  • It’s unclear where the fundamental “floor” is for this market. 

We’ve been telling our paid subscribers for several weeks that Q3 earnings season will likely decide whether the S&P 500 can rally back to flat in 2015, or whether the August lows get tested again.

The reason I say that is simple:  Earnings estimates are going to come down for 2016The question is just by how much?

The answer to that question will likely determine whether stocks can get back to flat or potentially test the August lows again.

This is vitally important to client portfolios because if full year S&P 500 2016 EPS  drop to $120, as Goldman Sachs said last week they think they will, then the S&P 500 could be as much as 10% overvalued at current levels.

To help our paid subscribers navigate this upcoming earnings season, we created an S&P 500 Valuation Table and we are urging them to print it, cut it out, and tape it to their desks.

That table will show them where fundamental value is for the S&P 500 depending on whether 2016 EPS are $125 or $120 (most people think 2016 EPS will fall in that range).  And, we’re committed to making sure they know whether it will be $120 or $125 before their competition does.

That way, if we see markets roll over again, while their competitors are in a panic trying to figure out “why,” they will have key fundamental valuation levels to show clients that can help:

1) Calm Nerves and

2) Identify Attractive Longer Term Entry Points.

We are committed to making sure our paid subscribers know where fundamental “value” is in this market, so that they can position client portfolios accordingly.

That’s why we created the S&P 500 Valuation Table for our subscribers and urged them to print it out and keep it as a reference as earnings reports begin to be released.

Make sure you have an analyst team working for you who is committed to making sure you have independent, concise fundamental and technical analysis throughout the start of earnings season and the entire 4th quarter.

Our “Pure Play” Hedge

We remain very skeptical about this market, and that’s why we are still identifying for subscribers an ETF that successfully protected portfolios during the August declines, and did so again over the past two weeks as stocks collapsed basically to the August lows. 

During the August declines, this ETF rose 15%, protecting portfolios from the volatility.

When the S&P 500 fell 4% two weeks ago, this ETF rose 6.0% and it remains an attractive way to protect portfolios against a further China/bond market inspired decline in stocks. 

We believe that in order to “get the market right’ you have to follow the fundamentals and technicals, and that’s why we watch key leading indicators in both the bond and commodity markets, and keep tabs on the valuation metrics of the broad market.

Our paid subscribers know that we will tell them when our indicators in commodities and bonds go from flashing a “warning” sign to flashing a “crisis” sign and that we will give them specific ETFs that can protect portfolios should things get worse.

Given the market volatility I am extending a limited time, special offer to new subscribers of our full, daily report that we call our “2 week grace period.” If you subscribe to The 7:00’s Report today, and after the first two weeks you are not completely satisfied, we will refund your first quarterly payment, in full, no questions asked.

Click here to subscribe and get our three leading indicator ETFs, our hedge ETF and the 2015 valuation table.

Let Us Help You Navigate the Market for the Rest of 2015

We have often referred to ourselves as “navigators of the market” for our subscriber base, and so far in 2015, we have been able to help our subscribers get this market Right.

  • Back in March when markets were relentlessly grinding to new highs and volatility was essentially non-existent, we continued to tell our subscriber base that the market was “capped” at 2100 based on valuations, and that investors should not be recklessly increasing long exposure despite the new highs.
  • In April we gave 4 reasons we were “cautious” on the market. They were: 1) Valuations 2) The “low quality” of the rally 3) Continued “lackluster” global economic data and 4) More Fed uncertainty.
  • In early June, we notified our subscribers that our favorite leading indicator, a high yield debt ETF, was beginning to show signs of failure and potentially rolling over, which was a bad signal for stocks
  • Then in late July, we alerted our subscribers that two of the most historically accurate technical indicators had turned bearish: 1) Dow Theory and 2) a “death cross” in the Dow Industrials
  • Most recently, we have been guiding subscribers through the volatility, offering key technical levels (such as support at 1880 last week and resistance at 1990 yesterday and today) as well as fundamental support levels based on valuations so that subscribers could demonstrate to their clients that they are on top of the volatility and ahead of the markets which ultimately builds confidence and solidifies relationships.

In three years of doing this the absolute best feedback I’ve ever received was when a client (an FA from a bulge bracket firm based in Florida) called me late last year and said our Report helped him land a 25 Million dollar client!

But, while obviously not as monetarily impressive, we continue to get strong feedback that our report is: Providing value, Helping our clients outperform markets, and Helping them build their business: 

Thanks for your continued insight; it has saved my clients over $2M USD this year… Keep up the great work!” – FA from a Bulge Bracket Firm.

“Let me know if there is anything else that you need from us. Thanks again for everything. I really enjoy the Report – it is helping me grow my business and stay on top of things.” –  Independent RIA.

Great service from a great company!!” – FA from a Bulge Bracket Firm.

“Great report. You’ve become invaluable to me, thanks for everything…!  –  FA from a Bulge Bracket Firm”

Subscriptions start at just $65 per month, billed quarterly, and with the option to cancel any time prior to the beginning of the next quarter, there’s simply no reason why you shouldn’t subscribe to The 7:00’s Report right now.

Begin your subscription to The 7:00’s Report right now by clicking this link and being redirected to our secure order form.


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Tom Essaye,
Editor of The 7:00’s Report

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