{"id":231619,"date":"2022-05-20T18:13:39","date_gmt":"2022-05-20T18:13:39","guid":{"rendered":"https:\/\/aptuscapitaladvisors.com\/?p=231619"},"modified":"2022-12-14T17:46:55","modified_gmt":"2022-12-14T17:46:55","slug":"the-second-leg-to-drop","status":"publish","type":"post","link":"https:\/\/aptuscapitaladvisors.com\/the-second-leg-to-drop\/","title":{"rendered":"The Second Leg to Drop"},"content":{"rendered":"

First, I really wanted to touch base after yesterday\u2019s price decline across indices \u2013 it was the worst day since June 2020. I know that I have been saying for quite some time that the market will continue to remain volatile until it perceives that we have seen some signs of peak inflation \u2013 this continues to remain true. However, yesterday felt a little bit different.<\/p>\n

It felt as if the market was finally starting to price in some sort of earnings decline. Retail stocks tend to lag the traditional earnings season by a few weeks, and here over the past few days, we\u2019ve seen the likes of Walmart (WMT), Target (TGT), and Home Depot (HD) report earnings. On the first two, we saw considerable drops \u2013 in fact, it was WMT\u2019s largest single day decline since 1987. What happened?<\/p>\n

Let\u2019s take a step back. We\u2019ve continued to preach that all the market\u2019s decline this year can be attributable to a compression in market multiples. We started the year at 21.5x forward P\/E and we now sit ~16.5x forward P\/E. This is just 10% higher than historical averages.<\/p>\n

 <\/p>\n

\"\"<\/p>\n

 <\/p>\n

And if you\u2019ve heard me talk lately, I\u2019ve been warning on the case that the denominator of this multiple is becoming increasingly more and more important. Year-to-date, S&P 500 EPS expectations have continued to increase – approximately +9% since 12\/31\/21. The market has continued to price in optimism on the earnings front. What if we started to see some type of decline in earnings expectations through the remainder of the year?<\/p>\n

Anecdotally, as we were working through earnings season, we witnessed a lot of companies decrease their Q2 guidance, while reaffirming full-year guidance. This tells me that management teams understand that demand and inflation will continue to persist through June, but they have no clue how to forecast this into the future. That is why we haven\u2019t seen many analysts decrease their earnings expectations for the year thus far.<\/p>\n

But over the last few days, it appears as if the market has started to do that for them. Yesterday\u2019s decline felt as if the market was starting to recognize that earnings growth and S&P 500 profitability may be in jeopardy as inflation will continue to be higher throughout the year \u2013 specifically that China\u2019s draconian \u201cZero-COVID\u201d policy and its effect on the supply chain remains very apparent.<\/p>\n

That\u2019s why WMT \/ TGT \/ KSS earnings have been very important in the eyes of the market \u2013 it gives a (close) real-time look at the spending behaviors of consumers during this inflationary period. More importantly, the effect that higher prices at the gas pump has switched consumer\u2019s spending habits. We\u2019re going to keep watching this, as we\u2019ll receive a few more retail reports over the next week.<\/p>\n

 <\/p>\n

Is the “Fed Put” Alive?<\/strong><\/h5>\n

 <\/p>\n

Finally, a question that we have received lately is about the \u201cFed Put\u201d.<\/p>\n

We continue to believe that the Fed Put is much lower right now, as FOMC Chairman Jerome Powell said at the WSJ Conference the other day that basically the Fed is going to keep raising until we have a recession unless inflation meaningfully improves.<\/p>\n

Many have said that the Fed Put is dead \u2013 I don\u2019t believe that \u2013 but I agree that it is MUCH lower than where we currently sit, with the S&P 500 at 3900. The size of the decline (i.e., the \u201cstrike\u201d of the put) depends both on the level of inflation and how much stocks have appreciated in the recent past.<\/p>\n

The cause of the decline is equally important. The Fed has a long history of easing policy in response to earnings drops, but there isn\u2019t much evidence that it responds to multiple compression. The fact that inflation is higher than at any time since the genesis of the Fed Put, and that stocks have appreciated a lot over the past two years, suggest the strike is well below current prices.<\/p>\n

 <\/p>\n

\"\"<\/p>\n

 <\/p>\n

Similarly, the recent decline in stock prices owes exclusively to lower multiples; it would take another leg down induced by a drop in earnings to impress the Fed. I don\u2019t think what we witnessed from TGT and WMT this week will even jump start a conversation about turning\u00a0dovish<\/em>.<\/p>\n

Bottom line, the Fed Put is alive, but it\u2019s not even close to being activated.<\/p>\n

 <\/p>\n

Disclosures<\/strong><\/h5>\n

 <\/p>\n

Past performance is not indicative of future results. This material is not financial advice or an offer to sell any product. The information contained herein should not be considered a recommendation to purchase or sell any particular security. Forward looking statements cannot be guaranteed.<\/em>\u00a0<\/em><\/p>\n

This commentary offers generalized research, not personalized investment advice. It is for informational purposes only and does not constitute a complete description of our investment services or performance. Nothing in this commentary should be interpreted to state or imply that past results are an indication of future investment returns. All investments involve risk and unless otherwise stated, are not guaranteed. Be sure to consult with an investment & tax professional before implementing any investment strategy. Investing involves risk. Principal loss is possible.<\/em>\u00a0<\/em><\/p>\n

The S&P 500\u00ae Index is the Standard & Poor’s Composite Index and is widely regarded as a single gauge of large cap U.S. equities. It is market cap weighted and includes 500 leading companies, capturing approximately 80% coverage of available market capitalization.<\/em>\u00a0<\/em><\/p>\n

Advisory services are offered through Aptus Capital Advisors, LLC, a Registered Investment Adviser registered with the Securities and Exchange Commission. Registration does not imply a certain level or skill or training. More information about the advisor, its investment strategies and objectives, is included in the firm\u2019s Form ADV Part 2, which can be obtained, at no charge, by calling (251) 517-7198. Aptus Capital Advisors, LLC is headquartered in Fairhope, Alabama. ACA-2205-18.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

First, I really wanted to touch base after yesterday\u2019s price decline across indices \u2013 it was the worst day since June 2020. I know that I have been saying for quite some time that the market will continue to remain volatile until it perceives that we have seen some signs of peak inflation \u2013 this […]<\/p>\n","protected":false},"author":11,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","content-type":"","inline_featured_image":false,"footnotes":""},"categories":[20,130,129],"tags":[190,189],"class_list":["post-231619","post","type-post","status-publish","format-standard","hentry","category-blog","category-macro-updates","category-market-updates-blog","tag-earnings-shortfalls","tag-fed-put"],"yoast_head":"\nThe Second Leg to Drop - Aptus Capital Advisors<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/aptuscapitaladvisors.com\/the-second-leg-to-drop\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The Second Leg to Drop - Aptus Capital Advisors\" \/>\n<meta property=\"og:description\" content=\"First, I really wanted to touch base after yesterday\u2019s price decline across indices \u2013 it was the worst day since June 2020. I know that I have been saying for quite some time that the market will continue to remain volatile until it perceives that we have seen some signs of peak inflation \u2013 this […]\" \/>\n<meta property=\"og:url\" content=\"https:\/\/aptuscapitaladvisors.com\/the-second-leg-to-drop\/\" \/>\n<meta property=\"og:site_name\" content=\"Aptus Capital Advisors\" \/>\n<meta property=\"article:published_time\" content=\"2022-05-20T18:13:39+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2022-12-14T17:46:55+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/aptuscapitaladvisors.com\/wp-content\/uploads\/2022\/05\/Forward-PE.png\" \/>\n<meta name=\"author\" content=\"David Wagner\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"David Wagner\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"5 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/aptuscapitaladvisors.com\/the-second-leg-to-drop\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/aptuscapitaladvisors.com\/the-second-leg-to-drop\/\"},\"author\":{\"name\":\"David Wagner\",\"@id\":\"https:\/\/aptuscapitaladvisors.com\/#\/schema\/person\/dadaf72c4f2a9c91338a6da9c1d78ced\"},\"headline\":\"The Second Leg to Drop\",\"datePublished\":\"2022-05-20T18:13:39+00:00\",\"dateModified\":\"2022-12-14T17:46:55+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/aptuscapitaladvisors.com\/the-second-leg-to-drop\/\"},\"wordCount\":985,\"commentCount\":0,\"publisher\":{\"@id\":\"https:\/\/aptuscapitaladvisors.com\/#organization\"},\"keywords\":[\"earnings shortfalls\",\"Fed Put\"],\"articleSection\":[\"Blog\",\"Macro Updates\",\"Market Updates\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\/\/aptuscapitaladvisors.com\/the-second-leg-to-drop\/#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/aptuscapitaladvisors.com\/the-second-leg-to-drop\/\",\"url\":\"https:\/\/aptuscapitaladvisors.com\/the-second-leg-to-drop\/\",\"name\":\"The Second Leg to Drop - Aptus Capital Advisors\",\"isPartOf\":{\"@id\":\"https:\/\/aptuscapitaladvisors.com\/#website\"},\"datePublished\":\"2022-05-20T18:13:39+00:00\",\"dateModified\":\"2022-12-14T17:46:55+00:00\",\"breadcrumb\":{\"@id\":\"https:\/\/aptuscapitaladvisors.com\/the-second-leg-to-drop\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/aptuscapitaladvisors.com\/the-second-leg-to-drop\/\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/aptuscapitaladvisors.com\/the-second-leg-to-drop\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/aptuscapitaladvisors.com\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"The Second Leg to Drop\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/aptuscapitaladvisors.com\/#website\",\"url\":\"https:\/\/aptuscapitaladvisors.com\/\",\"name\":\"Aptus Capital Advisors\",\"description\":\"Portfolio Management for Wealth Managers\",\"publisher\":{\"@id\":\"https:\/\/aptuscapitaladvisors.com\/#organization\"},\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/aptuscapitaladvisors.com\/?s={search_term_string}\"},\"query-input\":\"required name=search_term_string\"}],\"inLanguage\":\"en-US\"},{\"@type\":\"Organization\",\"@id\":\"https:\/\/aptuscapitaladvisors.com\/#organization\",\"name\":\"Aptus Capital Advisors\",\"url\":\"https:\/\/aptuscapitaladvisors.com\/\",\"logo\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/aptuscapitaladvisors.com\/#\/schema\/logo\/image\/\",\"url\":\"https:\/\/aptuscapitaladvisors.com\/wp-content\/uploads\/2019\/12\/logo@2x-1.png\",\"contentUrl\":\"https:\/\/aptuscapitaladvisors.com\/wp-content\/uploads\/2019\/12\/logo@2x-1.png\",\"width\":674,\"height\":200,\"caption\":\"Aptus Capital Advisors\"},\"image\":{\"@id\":\"https:\/\/aptuscapitaladvisors.com\/#\/schema\/logo\/image\/\"}},{\"@type\":\"Person\",\"@id\":\"https:\/\/aptuscapitaladvisors.com\/#\/schema\/person\/dadaf72c4f2a9c91338a6da9c1d78ced\",\"name\":\"David Wagner\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/aptuscapitaladvisors.com\/#\/schema\/person\/image\/\",\"url\":\"https:\/\/secure.gravatar.com\/avatar\/6f6d2a44ab3e9edd9a66275771424640?s=96&d=mm&r=g\",\"contentUrl\":\"https:\/\/secure.gravatar.com\/avatar\/6f6d2a44ab3e9edd9a66275771424640?s=96&d=mm&r=g\",\"caption\":\"David Wagner\"},\"url\":\"https:\/\/aptuscapitaladvisors.com\/author\/dwagner\/\"}]}<\/script>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"The Second Leg to Drop - Aptus Capital Advisors","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/aptuscapitaladvisors.com\/the-second-leg-to-drop\/","og_locale":"en_US","og_type":"article","og_title":"The Second Leg to Drop - Aptus Capital Advisors","og_description":"First, I really wanted to touch base after yesterday\u2019s price decline across indices \u2013 it was the worst day since June 2020. I know that I have been saying for quite some time that the market will continue to remain volatile until it perceives that we have seen some signs of peak inflation \u2013 this […]","og_url":"https:\/\/aptuscapitaladvisors.com\/the-second-leg-to-drop\/","og_site_name":"Aptus Capital Advisors","article_published_time":"2022-05-20T18:13:39+00:00","article_modified_time":"2022-12-14T17:46:55+00:00","og_image":[{"url":"https:\/\/aptuscapitaladvisors.com\/wp-content\/uploads\/2022\/05\/Forward-PE.png"}],"author":"David Wagner","twitter_card":"summary_large_image","twitter_misc":{"Written by":"David Wagner","Est. reading time":"5 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/aptuscapitaladvisors.com\/the-second-leg-to-drop\/#article","isPartOf":{"@id":"https:\/\/aptuscapitaladvisors.com\/the-second-leg-to-drop\/"},"author":{"name":"David Wagner","@id":"https:\/\/aptuscapitaladvisors.com\/#\/schema\/person\/dadaf72c4f2a9c91338a6da9c1d78ced"},"headline":"The Second Leg to Drop","datePublished":"2022-05-20T18:13:39+00:00","dateModified":"2022-12-14T17:46:55+00:00","mainEntityOfPage":{"@id":"https:\/\/aptuscapitaladvisors.com\/the-second-leg-to-drop\/"},"wordCount":985,"commentCount":0,"publisher":{"@id":"https:\/\/aptuscapitaladvisors.com\/#organization"},"keywords":["earnings shortfalls","Fed Put"],"articleSection":["Blog","Macro Updates","Market Updates"],"inLanguage":"en-US","potentialAction":[{"@type":"CommentAction","name":"Comment","target":["https:\/\/aptuscapitaladvisors.com\/the-second-leg-to-drop\/#respond"]}]},{"@type":"WebPage","@id":"https:\/\/aptuscapitaladvisors.com\/the-second-leg-to-drop\/","url":"https:\/\/aptuscapitaladvisors.com\/the-second-leg-to-drop\/","name":"The Second Leg to Drop - Aptus Capital Advisors","isPartOf":{"@id":"https:\/\/aptuscapitaladvisors.com\/#website"},"datePublished":"2022-05-20T18:13:39+00:00","dateModified":"2022-12-14T17:46:55+00:00","breadcrumb":{"@id":"https:\/\/aptuscapitaladvisors.com\/the-second-leg-to-drop\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/aptuscapitaladvisors.com\/the-second-leg-to-drop\/"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/aptuscapitaladvisors.com\/the-second-leg-to-drop\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/aptuscapitaladvisors.com\/"},{"@type":"ListItem","position":2,"name":"The Second Leg to Drop"}]},{"@type":"WebSite","@id":"https:\/\/aptuscapitaladvisors.com\/#website","url":"https:\/\/aptuscapitaladvisors.com\/","name":"Aptus Capital Advisors","description":"Portfolio Management for Wealth Managers","publisher":{"@id":"https:\/\/aptuscapitaladvisors.com\/#organization"},"potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/aptuscapitaladvisors.com\/?s={search_term_string}"},"query-input":"required name=search_term_string"}],"inLanguage":"en-US"},{"@type":"Organization","@id":"https:\/\/aptuscapitaladvisors.com\/#organization","name":"Aptus Capital Advisors","url":"https:\/\/aptuscapitaladvisors.com\/","logo":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/aptuscapitaladvisors.com\/#\/schema\/logo\/image\/","url":"https:\/\/aptuscapitaladvisors.com\/wp-content\/uploads\/2019\/12\/logo@2x-1.png","contentUrl":"https:\/\/aptuscapitaladvisors.com\/wp-content\/uploads\/2019\/12\/logo@2x-1.png","width":674,"height":200,"caption":"Aptus Capital Advisors"},"image":{"@id":"https:\/\/aptuscapitaladvisors.com\/#\/schema\/logo\/image\/"}},{"@type":"Person","@id":"https:\/\/aptuscapitaladvisors.com\/#\/schema\/person\/dadaf72c4f2a9c91338a6da9c1d78ced","name":"David Wagner","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/aptuscapitaladvisors.com\/#\/schema\/person\/image\/","url":"https:\/\/secure.gravatar.com\/avatar\/6f6d2a44ab3e9edd9a66275771424640?s=96&d=mm&r=g","contentUrl":"https:\/\/secure.gravatar.com\/avatar\/6f6d2a44ab3e9edd9a66275771424640?s=96&d=mm&r=g","caption":"David Wagner"},"url":"https:\/\/aptuscapitaladvisors.com\/author\/dwagner\/"}]}},"_links":{"self":[{"href":"https:\/\/aptuscapitaladvisors.com\/wp-json\/wp\/v2\/posts\/231619","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/aptuscapitaladvisors.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/aptuscapitaladvisors.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/aptuscapitaladvisors.com\/wp-json\/wp\/v2\/users\/11"}],"replies":[{"embeddable":true,"href":"https:\/\/aptuscapitaladvisors.com\/wp-json\/wp\/v2\/comments?post=231619"}],"version-history":[{"count":0,"href":"https:\/\/aptuscapitaladvisors.com\/wp-json\/wp\/v2\/posts\/231619\/revisions"}],"wp:attachment":[{"href":"https:\/\/aptuscapitaladvisors.com\/wp-json\/wp\/v2\/media?parent=231619"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/aptuscapitaladvisors.com\/wp-json\/wp\/v2\/categories?post=231619"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/aptuscapitaladvisors.com\/wp-json\/wp\/v2\/tags?post=231619"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}