What a difference a few months can make. Entering Q1, thanks to heightened geopolitical and economic concerns, expectations were through the floor. Investors were bracing for guidance revisions or eliminations and fear had sunk in. This meant underwhelming, yet “better-than-feared” results were rewarded, guidance reiterations were praised and poor showings were generally forgiven. There was a lot of exhaling.

Fast-forward to today, and things are quite different. Indexes have ferociously rallied by more than 20%. Some of our holdings have soared and even doubled over that short stretch of time. New all-time highs have been reached and the S&P 500 is now trading for 23x forward earnings. Low-quality companies are enjoying aggressive short squeezes, liquidity is flowing, enthusiasm is high and recent profits are large. Multiple expansion and large stock price appreciation both naturally raise the bar for what’s considered a “good quarter.” I think that’s going to lead to beat-and-raises not enjoying large immediate stock rewards. Poor results will likely be more severely punished and great results will struggle to deliver large immediate paydays. If “better than feared” was Q1’s theme, “did you outperform by enough” will, in my mind, be the theme of Q2. This is just my opinion and won’t be uniformly true, but I do think this is the most likely pattern for the season.

For long-term investors like myself, what does all of this mean? We don’t care about how a share price moves over a few-day period nearly as much as overall returns. The goal is to hold for years, not minutes. So why does this matter? I think it’s going to lead to Mr. Market opening the door for more share accumulation for the first time since April. I think there will be upward profit estimate revisions without much share price appreciation, and that multiple contraction would naturally improve risk/reward. I will be looking for solid quarters from great companies to be punished to hopefully deploy a bit of the cash I’ve been recently raising. Aside from existing holdings, I continue to be interested in starting a position in ServiceNow for the right price. I’m thinking somewhere around 40x forward FCF (currently closer to 50x).