It’s that time of year — earnings season. And unfortunately, it’s colliding with a very hawkish Federal Reserve. Since the 10-year yield has seen such a steep and fast rise, earnings needed to be exceptional to offset that compression. And so far, earnings season has been good — but not good enough to stage a stock rally. As more large-cap companies report earnings in the next few weeks, the tune could change. But until then, we’re in a delightful wait-and-see period.

At the same time, a divergence is rising. Stocks normally follow earnings and revenue trends. But recently, even with strong fundamental growth, stock prices continue to fall. They’ll eventually snap back to meet those trends.

The companies that I’m following within this divergence are also reporting fabulous numbers this earnings season. While the stocks are suffering, those fundamental trendlines push higher. The bigger this divergence gets, the bigger the snap-back will be — and the bigger the gains.

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