DFAC - Fourth Quarter Could Be Bumpy

• We’re starting the post-Labor Day period with the S&P 500 sitting comfortably with a 20 percent year-to-date gain, with the tech-laden Nasdaq Composite nipping at its heels and making up for the big performance gap with value stocks earlier in the year.
• Earnings per share for S&P 500 companies came in at a whopping 92 percent in Q2, and is expected to register a 43 percent gain for the year as a whole. That is a pretty forgiving denominator for the price / earnings ratio.
• But the tailwind will not last forever. The market will start to pay less attention to valuation based on trailing periods of one-off excess and more attention to what profits - and in particular profit margins - are going to look like down the road.
• The 4Cs of cyber, climate, contagion and China are clear and present risks, though neither their timing nor their magnitude is knowable.

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