Week of July 14, 2014

Corporate Earnings Season

We’re in the early innings of the quarterly corporate earnings reporting season, but once again, the hurdle for stocks remains rather low. Expectations vary by source, but most predict that earnings per share of S&P 500 companies, on average, will have grown by about a 5 percent annualized rate in the second quarter of 2014. Revenue growth expectations are even lower. Investors will likely be paying close attention to management comments on upcoming quarters, as we put the atrocious weather endured during the first quarter further in the past. Current expectations, according to FactSet, are for earnings to accelerate significantly to 9.4 percent in the third quarter, and 10.5 percent in the fourth quarter. Given where stock valuations currently stand, it’s likely that any further gains in the stock market will prove to be increasingly difficult without this presumed acceleration of earnings coming to fruition.

Side Note of the Week

Warren Buffett, a man who’s made his fortune by actively identifying and purchasing stocks, raised a few eyebrows earlier this year after he recommended that most investors should simply buy a low-cost exchange traded fund (ETF) that mirrors the performance of the S&P 500 rather than paying someone to manage their assets. He claims that in today’s world, it’s too difficult to beat a fixed index of securities. However, one thing most people may not realize is that the S&P 500 itself is a quasi-actively managed fund. The average company’s lifespan in the S&P 500 index used to be well above 50 years, but has shrank all the way to a mere 15 years today. In other words, should trends and estimates hold true, more than 75 percent of all companies currently in the S&P 500 will have been replaced by 2027, according to Forbes. Furthermore, you never get to meet the people dictating the turnover in the S&P 500 index.

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_{Securities offered through Jacques Financial, LLC (JFLLC) a Broker-Dealer, Member FINRA and SIPC. Certain associates of Joseph W. Jacques, CPA, CFP^TM are registered representatives of JFLLC. Joseph W. Jacques, CPA, CFP^TM and JFLLC are affiliated. Investment advisory services are offered through Jacques Advisors, LLC an affiliate of JFLLC. Tax services are offered through Jacques & Associates Certified Public Accountants, LLC an affiliate of JFLLC.}

<sup>* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments may be appropriate for you, consult with your financial advisor. 
* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. 
* The Dow Jones Industrial Average is an unmanaged group of securities demonstrating how 30 large publicly owned companies have traded and cannot be invested into directly.
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* Charts and graphs should not be relied upon as the sole basis for any investment decision and are for general informational purposes only.
* The prices of small cap stocks are generally more volatile than large cap stocks.
* Consult your financial professional before making any investment decision.
* This newsletter was prepared by CWM, LLC.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.</sup>