If you just read the headlines, you’d think earnings season is off to a disastrous start. After all, both Netflix (NFLX) and Tesla (TSLA) reported miserable earnings last week.
But that’s why you don’t just read headlines.
While Netflix and Tesla may have disappointed investors last week, most other companies did not.
We’re now two weeks into the first quarter earnings season. Already, about 20% of companies in the S&P 500 have reported quarterly numbers. Most of them have topped estimates.
The beats haven’t been small, either.
Companies are beating earnings estimates by an average of 5.3% this quarter. If that number seems big, it’s because it is. At 5.3%, this quarter’s average earnings per share (EPS) surprise size is the biggest since 2021!
As you can see in the chart above, companies aren’t just exceeding estimates by the highest margin since 2021 – their stock prices are rallying, too.
Great Earnings Precede Great Rallies
In fact, pretty much every company that reported earnings over the past two weeks – excluding Tesla, Netflix, and AT&T (T) – rallied after they reported earnings.
On an individual stock basis, this is the best stock reaction I’ve seen from earnings in a long time.
Forget what you’re reading in the headlines.
Netflix missed estimates because they delayed the launch of paid sharing efforts in the U.S. by a few months. That’s a company-specific problem and says nothing about consumer spending trends.
Tesla missed estimates because they’ve been cutting prices aggressively in an attempt to defend market share against emerging competition in the EV space. That’s a company-specific problem and says nothing about auto demand.
AT&T missed estimates because they’re spending an arm and a leg to build-out 5G infrastructure to support the next wave of telecom services. That’s a company-specific issue and says nothing about consumers not paying their phone bills.
Essentially, the headline misses you’ve heard about over the past two weeks were driven by company-specific issues – not macroeconomic issues.
Look anywhere else this earnings season, and you’ll see sales beats, earnings beats, and big stock jumps.
It’s been a great earnings season.
And this could be just the start of a big earnings-driven rally in stocks.
Rule number one of the stock market: As go earnings, so go stocks. Stocks follow the earnings. This game is that simple.
Always follow the earnings.
Across the stock market, earnings have fallen flat over the past few quarters. That’s why stocks have fallen flat.
But based on Wall Street analyst estimates, this could be the quarter wherein companies get their earnings grooves back.
That is, based on current estimates, earnings are expected to start rising again at a healthy clip starting this quarter.
The Final Word
This could be a HUGE earnings season.
It’ll prove the economy isn’t on the brink of collapse. It’ll prove that companies are beating the inflation battle. It’ll prove that consumers and businesses are still spending. It’ll prove that corporate profits remain resilient.
And, most importantly, it’ll prove that stocks can, should, and will push higher.
We’re calling for a big stock market rally going into the summer, and we think that big rally could start this week.
What’re you waiting for?
The stock market kicked everyone’s butt in 2022. It’s time to get back on your feet and start making money in 2023.
Like with our model Core Portfolio, which is up more than 20% this year already – and it’s not even May yet.
Interested? You should be. The stock market could be about to boom, and you don’t want to be caught on the wrong side.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
