Expectations vs. Reality

As the summer comes to a close, market participant’s will begin to come back from their vacations and once again focus on the direction of the market.  Once again this course will be laid with the expectations of both the economy and individual stocks, higher expectations generally mean a growing stock market.  However, these higher expectations come with a higher cost, the risk of not meeting those expectations.  Over the last few days we have seen both economic numbers and company earnings information, for the most part come in better than market participants were expecting.  Part of this comes from companies being overly cautious when making predictions of the future, as well as economists being overly cautious as they make their predictions for the future.  The problem with the continued beating of expectations is if the market fails to continue to beat expectations or the rate at which they are beating them slows that market has the potential to come falling back to reality.  This is similar to someone coming off a “sugar high,” once you come back to normal you generally need more sugar to amp your body up again.  Our hope is analysts will slowly raise their expectations so the market doesn’t get addicted to the “sugar” too quickly. DC