The stock market had a rather boring week. The S&P 500 stayed in a tight range throughout the week and finished basically unchanged. Global stocks performed a little better as the MSCI ACWI inched 0.1% higher. The Bloomberg BarCap Aggregate Bond Index dropped 0.3%.

Key points for the week

• Corporate earnings continued to show healthy growth in the second quarter.
• Investors have grown wise to how corporations manipulate expectations.
• We focus on the long-term business value and not quarterly fluctuations in earnings.

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What to Expect When You’re Expecting

As the second longest bull market in U.S. history remains in full effect, investors seem to be factoring in expectations that companies will do better than analysts expect. So far this quarter, 87% of companies have beat earnings estimates with a surprise percentage of 4.5%, both percentages being way above five-year averages.

Corporations are able to beat expectations so consistently by deliberately managing expectations lower and then beating that target. But investors have become wise to the tactic. As the accompanying chart shows, beating earnings now results in little to no price gain, while missing results in a large price drop. There used to be a modest reward for beating expectations, but it has now disappeared.

While some firms continue to play the earnings game, our focus remains on taking a long-term view and using quarterly earnings as a checkpoint to make sure our investments are on the right path.

Fun Story of The Week

Ontario woman accidentally steals car for 2 weeks

Yes, you read the headline correctly. A woman in Ontario recently rented a black Nissan Sentra then made a stop at a local Walmart. After her shopping trip, she went back to the area where she had parked and got into a shiny black vehicle. Only problem was it wasn’t her rental car. She didn’t notice until she tried returning the stolen vehicle and complained about its cleanliness. When the rental car manager saw the Infiniti QX50 hatchback, he knew something wasn’t right.

This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.

S&P 500 INDEX

The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

MSCI ACWI INDEX

The MSCI ACWI captures large- and mid-cap representation across 23 developed markets (DM) and 23 emerging markets (EM) countries*. With 2,480 constituents, the index covers approximately 85% of the global investable equity opportunity set.

Bloomberg U.S. Aggregate Bond Index

The Bloomberg U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds.