Cautious Optimism as We Await Earnings Reports


Cautious Optimism as We Await Earnings Reports

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This week seems like more of the same holding pattern as we wait for many public companies to release earnings reports, which may help consumer spending trends take shape.

In the interim, we’re looking at those consumer discretionary stocks, some of which have already reported earnings, and tech stocks. For now, we recommend remaining cautiously optimistic about the earnings season over the next few weeks.

At the beginning of each quarter, most public companies report their profits for the previous quarter and the outlook for the next quarter to their shareholders. This quarterly cycle also called “earnings season,” starts at the end of next week when the big banks start reporting.

Why is this notable? The data compiled by companies is more current and more detailed than government reports. We can use these reports to gauge consumer spending, which still looks strong, given some positive data from companies that have already reported, like Nike (NYSE:NKE), General Mills (NYSE:GIS) and Constellation Brands (NYSE:STZ).

For now, we still recommend a focus on large-cap growth and value in the tech and retail sectors. These groups got off to a slow start last week but are leading the market today, which we expect to continue as earnings season gets underway.

Monday’s Livestream: Can Inflation Kill Stock Profits in April?

A few early reports will start streaming in over the next few days, and some have already. Traders are already on edge over inflation and the risk that rising prices will drop corporate profits.

With stocks still trading near all-time highs, this is the right time to consider the potential for volatility as companies report issues with rising wages, difficulty hiring, and spiking materials and energy costs. The threat of inflation is contributing to that volatility, but it’s definitely not time to panic and sell…

Rather, now is the time for careful consideration of which stocks are now trading at a discount and perhaps picking up some shares of your favorites – we discuss this and more in Monday’s video, which you can catch up on here.

Wednesday: Don’t Jump Out of the Market Just Yet

We predicted that the 10-year and 2-year Treasury yields would invert, and they did so last Friday.

Traders tend to see confirmation of their worst fears everywhere, so an inverted yield curve is going to trigger some volatility this month.

However, as we’ve mentioned here before, the yield curves’ activity is not necessarily indicative of an imminent, looming market crash. On average, a yield curve inversion leads a recession by about 12 months.

Further, in between the inversion and the actual market top, stock returns tend to be very profitable. So, jumping out of the market now is a bad idea.

Here are the most recent examples to give you some perspective.

Source: sylv1rob1 /

As you can tell, inversions are rare. Therefore, the dataset we can use to make statistical judgments isn’t great, but its track record is good enough to take it seriously and continue making contingency plans.

Right now, we recommend taking advantage of that overreaction by opening new bullish positions, the strategy of which has historically been good.

For example, shipping companies sold off last Friday as investors worried that a drop in demand and high fuel prices would combine into a “perfect storm” for shippers. That may be an issue in the future, but there isn’t any evidence that it is happening yet.

On average, a yield curve inversion leads to a recession by about 12 months. Further, in between the inversion and the actual market top, stock returns tend to be very profitable. So jumping out of the market now is a bad idea.

Thursday’s Livestream: Stocks to Buy as Yields Soar

After falling for two-straight days, the S&P 500 has found some nice support and started to rebound as we head into next week when earnings season starts.

And all of this came after the Fed’s last monetary policy meeting minutes. It surprised the market, causing stocks to fall and Treasury yields to soar. In addition to raising interest rates, the Fed is going to start shrinking the size of its balance sheets by $1 trillion per year. Traders reacted to this news by selling stocks, but will the selling last?

We dive in deeper to learn how best to navigate these choppy markets in Thursday’s video, which you can check out here.

Don’t forget to subscribe to Learning Markets, our post-market breakdown and Q&A session, Mondays and Thursdays at 7:00 ET.

We’ll be back with you next week.

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