Shocking Evidence: The Market is Rigged! But Here’s Why Things Aren’t as Bad as You Think!

Daily Reckoning
Zach Scheidt

This post Shocking Evidence: The Market is Rigged! But Here’s Why Things Aren’t as Bad as You Think! appeared first on Daily Reckoning.

“FORE!!!”

My friend Chris had just hit another golf ball out of bounds. Only this time, it sailed into the adjacent fairway and nearly took the head off some guy lining up his pitch shot.

Chris was NOT a good golfer. In fact, he was undeniably the worst player in our group last spring.

And yet, despite hitting every other shot off-course, Chris still managed to beat me, my brothers, and our other friends at our informal golf tournament.

How did he do it?

It all ties back to a handicapping system that gave Chris an unfair advantage.

Fortunately for you, there’s a similar system in the market right now, setting up some big gains for investors who are paying attention.

Let me explain…

Leveling the Playing Field with a Weak Handicap

Chris was able to win the tournament because his golf “handicap” gave him a number of free strokes. If you’re familiar with the handicapping system, you know that scores from previous rounds are added up to reach an appropriate number of free strokes.

The only problem is, people can intentionally write down poor scores ahead of a tournament, to set the bar low. Then, with more free strokes, it’s easier to beat the competition. Most players call this “sandbagging” and it’s definitely an unfair way to win.

I’m not saying that’s what Chris did. But you never know!

Chris’ victory comes to mind as I look through first quarter earnings that have been driving stock prices for the past few weeks.

You see, corporate executives have been sandbagging in their own special way, telling investors to expect weaker earnings through the rest of the year. But if you look carefully at what’s going on behind the scenes, a different story emerges.

As report for fourth quarter earnings roll in, the average S&P 500 company has increased profits by about 28%. That’s a healthy rate of growth, and a big part of the reason stocks have been trading higher this year.

But there’s one problem with earnings season this month. Executives have been telling investors to expect weaker profits for the rest of the year. According to Bespoke Investment Group, the guidance numbers for this quarter are some of the weakest over the last 15+ years!

What’s driving this poor outlook?

Well, corporate executives have a number of concerns that are causing them to be more cautious when telling investors what to expect.

For starters, last year’s profits grew sharply because of the recent corporate tax cut. This year, companies will still enjoy lower tax rates, but they’re not going to change from last year. So we won’t get the same kind of growth seen in 2018.

Second, the government shutdown has been a big issue as these executives put together their talking points. With so much uncertainty (and potential fallout with millions of Americans missing paychecks), it makes sense for companies to be a little cautious moving forward.

Finally, the trade war …read more

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