Earnings Season Is Coming: Here’s What to Watch For

Earnings Season Is Coming: Here’s What to Watch For

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Positive analyst expectations of GDP increases and earnings in light of a decreasing GDP may seem incongruous. Lower inventory investment, reduced government spending, and rising imports dragged the GDP down, yet earnings were higher than the same period last year.

What gives with this divergence? After all, twice since 2011, the GDP has been negative while the S&P 500 also was in decline. Yet, analysts are still optimistic now. It’s exasperating.

We’re waiting eagerly for Q2 earnings to start streaming in after Independence Day to help get a better picture of the S&P’s reaction to healthier earnings and a more positive GDP. The variables we’re looking at to give a better forecast are…

  • Bank earnings: Fewer mortgages and loans mean weaker bank earnings.
  • Energy prices: High energy revenues could decrease if gas prices do the same.
  • Retail stocks: Higher inventory and lower spending signal stock price instability.

As we have been for weeks now, we are still urging caution in the short term. Things will start picking up in the market after the holiday, but we don’t expect much market movement until July 15, when the first big rounds of earnings reports start.

Livestreams and Shorts

Monday’s livestream focused on the Russian government defaulting on its debt, which is happening for the first time since 1998. This is a big deal for the financial markets, but it might not all be bad news. Find out the three most important consequences for investors in Monday’s live market analysis.

In Thursday’s livestream, we explore the challenges tech stocks have faced in 2022. Tech stocks have been hammered as interest rates have risen, and higher interest rates have forced traders to discount future earnings. But if the 10-year Treasury yield drops back below 3%, can tech stocks stage a comeback? We’ll examine the conditions that would make a tech bounce possible.

By tuning in every week for our free livestreams on YouTube, you’ll get the latest information on stocks, including options trading how-tos, ETFs explained, and short videos detailing everything from oil prices to the worst stocks of 2022. Check them out and subscribe to our YouTube channel here.

Reader Questions

This week, we had a few reader questions we wanted to address…

1.  Nike had earnings after the close today. After-hours trading is lower than the close. Do after-hours prices give any indication for trading tomorrow? – Bill C.

Yes, most of the time a negative reaction in the after-market will be followed by a lower open the next day. So far this year, that correlation has been even more reliable than usual.

However, what’s more interesting is whether a negative post-market reaction tells us anything about the stock in 20-trading-days (about a calendar month).

In that case, the correlation is weak enough that buying high-value stocks that have a small negative earnings reaction is a good strategy for extra returns in a bull market.

In our elite trading research service, Strategic Trader, we have used that to our advantage several times when the trend is stronger than it is right now, and we have had to maintain a more cautious outlook. But despite that, we’ve closed out 66 trades this year, for an average annualized return of 124.89%.

Click here to learn how we do it.

2. What are your thoughts on Energy (XLE) this week? It’s pulled back significantly. – Raman C.

In the short term, we are bullish on energy, but we should watch this sector closely. If the U.S. economy dips into recession, energy stocks drop 40-50% on average, and that could happen fairly quickly.


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