This week looks more like the same expectation pattern as we wait for many public companies to release earnings reports, which could help consumer spending trends emerge.
In the meantime, we look at consumer discretionary stocks, some of which have already reported earnings, and technology 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 provide their shareholders with their earnings for the previous quarter and the outlook for the next quarter. This quarterly cycle, also known as “earnings season”, begins at the end of next week when the big banks start publishing their reports.
Why is this notable? Data compiled by companies is more current and 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 released reports, like Nike (NYSE:NKE), General Mills (NYSE:GIS) and Constellation Brands (NYSE:ZST).
For now, we still recommend focusing on large cap growth and value in the technology and retail sectors. These groups got off to a slow start last week, but are dominating the market today, which is expected to continue as the earnings season begins.
Monday Livestream: Can Inflation Kill Stock Earnings in April?
A few early reports will start rolling out over the next few days, and some have already. Traders are already nervous about inflation and the risk that rising prices will dent corporate profits.
With stocks still trading near all-time highs, now is a good time to consider the potential for volatility as companies report issues with rising wages, hiring difficulties and soaring costs for materials and Energy. The threat of inflation is contributing to this volatility, but now is definitely not the time to panic and sell…
Rather, now is the time to take a close look at the stocks that are currently trading at a discount and perhaps pick up a few stocks from your favorites – we discuss these and more in Monday’s video, which you can catch up here.
Wednesday: Don’t skip the market just yet
We predicted that 10-year and 2-year Treasury yields would reverse, and they did 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 have already mentioned here, yield curve activity is not necessarily indicative of an impending and impending stock market crash. On average, an inversion of the yield curve leads to a recession of about 12 months.
Also, between the reversal and the actual top of the market, 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.
As you can see, reversals are rare. Therefore, the data set that we can use to make statistical judgments is not great, but its track record is good enough to take it seriously and continue to make contingency plans.
Right now, we recommend taking advantage of this overreaction by opening new bullish positions, which has always been a good strategy.
For example, shipping lines sold last Friday as investors feared lower demand and high fuel prices could combine into a “perfect storm” for shippers. This could be a problem in the future, but there is no evidence of this happening at this time.
On average, an inversion of the yield curve leads to a recession of about 12 months. Also, between the reversal and the actual top of the market, stock returns tend to be very profitable. So jumping out of the market now is a bad idea.
Thursday livestream: stocks to buy as yields soar
After falling for two consecutive days, the S&P500 found good support and started to rebound as we head into next week when the earnings season begins.
And all of this came after the final minutes of the Fed’s monetary policy meeting. It surprised the market, causing stocks to tumble and Treasury yields to soar. In addition to raising interest rates, the Fed will begin to shrink the size of its balance sheets by $1 trillion a year. Traders reacted to this news by selling stocks, but will the sell-off last?
We dive deeper to learn how best to navigate these choppy markets in Thursday’s video, which you can view here.
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We will be back with you next week.