What to expect this earnings season

The rally earlier this week is a positive sign for the market; it tells us that buyers are looking for good deals and that investors are not too worried about another significant drop.

This is also a good sign that a rebound occurs at the key support on the S&P 500 near 3,590. Solid support shows that there are enough buyers to keep prices from falling.

As we’ve been saying for a few weeks, third-quarter earnings should be better than expected, and as long as consumers are still spending, the floor below stock prices will remain high. So far, that’s how earnings season is going.

While things look positive so far, we still have to temper our expectations; Rarely does a sustained rally start with major reversals like last Thursday.

This tells us that investors are uncertain and that uncertainty is often discounted into the market price. The negatives weighing on the economy (inflation, rising interest rates, slowing global economic growth) are still severe enough to keep volatility high in the short term.

In our view, the positives and negatives are balanced enough at the moment to keep the market steady but should also prevent any major upside breakout.

So we’re hanging out in a gray area.

But with earnings season in full swing, we have some things to look forward to…


It’s too early in the earnings season to draw conclusions, but the bank’s reports look pretty good. In fact, if the non-cash losses that banks set aside to cover defaults next year (if unemployment starts to rise) are added up, the banks have done a great job. compared to expectations.

Bank of America Corp. (BAC)Our report is a good example of what we mean.

Net interest income is the highest in 10 years. According to BAC management, consumer spending on credit cards increased 13%, which is good because most of that spending is on travel and leisure, not necessities as many analysts have suggested. fear. Additionally, the bank reported the second-lowest delinquency rate of all time.

Inflation is an issue for consumer spending, but the BAC report supports our view that so far it has not affected consumers enough to represent a serious economic threat. important. The only negative from this news is that as long as consumer demand remains strong, the Fed will continue to raise rates by selling bonds and raising the target rate overnight.

Until we see consumer spending and corporate margins continue to decline, we think the odds of a major break below support are low.

Catalysts coming soon

There are two major factors over the next three weeks that are likely to determine whether the market stays within its channel (which is what we expect) or breaks out to the downside…

  1. Income from technology

Earnings season is in full swing this week, with tech companies starting to trickle in.

These reports will do a lot to improve (or hurt) investor sentiment first Microsoft Corporation (MSFT), Apple Inc. (AAPL), Alphabet Inc. (GOOGLE)and Inc. (AMZN) Report next week.

We expect tech companies to grow (lower guidance, so next quarter will be easier to beat) in their earnings calls. We expect companies to only target a strong dollar and falling international demand as the cause of the slowdown in growth this quarter, but do they think those trends will continue to generate growth? biggest difference to investor sentiment or not.

  1. Fed

The Federal Reserve’s Open Market Committee (FOMC) will almost certainly raise interest rates again on November 2.

The bond market is currently pricing in a 0.75% upside probability at 95%, so we have to assume that traders have factored in that change at current market levels.

However, we don’t know what the Fed Chair and other governors will have to say about price increases – and the future pace of increases at that point.

FOMC members recently said that there would be some debate over whether to continue raising interest rates into 2023 at the same pace as 2022. However, that was before the most recent CPI report, which exceeded the period. hope.

As a result, many traders and analysts worry that Fed members may start to become more hawkish with less “debating,” which is bad for stocks. For now, we think the Fed will remain consistent, but this may be the most important card.


In our view, the negatives and the positives in the market are almost balanced.

Traders often prefer clear black and white answers, so this can be frustrating. If the wild volatility in the market leaves you feeling a bit frustrated, you’re fine.

We plan to continue to use strategies that work well in a threading market. That means selling buy orders at resistance levels and buying back or writing short orders at lows. As more data comes out from earnings, the Fed (November 2) and unemployment (November 4), we’ll let you know if it changes our outlook or strategy in any way. how.

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Originally published on InvestorPlace. Read here.

Featured image credit: Photo by Karolina Grabowska; Bark; Thank you!



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