This Historic Earnings Season Sets up the Ultimate Rebound
On April 9, I said the correction was over.
Today, I am going to double down on that claim.
I know this earnings season has been off to a rough start.
The stock market remains volatile. And it may make you nervous about jumping in. But don’t let the shifty market keep you out.
Instead, let it pull you in, because now is the time you want to be invested.
I have been saying lately about how you want to ignore the noise, focus on your strategy and get ready to make tons of money as we lift out of this correction.
And the catalyst to all of that was this earnings season.
While many see this earnings season as off to a bumpy start, and as something to be cautious about, to me, it is a screaming buy opportunity … here’s why.
This Earnings Season Has Been Phenomenal
And even though it is off to a rough start, as some might say, there’s more than enough data in it to get me excited about the continuation of the bull market.
Let’s stick to the facts so far, because I don’t want you to let the noise of the market get you distracted.
The current earnings season is on a historic pace. It is set to be one of the best seasons we have had in 20 years, based on the percent of companies that are beating estimates.
And profit margins, another indicator of how healthy a company’s operations are, are on track to be the best since 2008.
Through Thursday last week, the stock market has posted phenomenal earnings in general. About three-quarters of the companies that have reported have beat analyst expectations.
And these are expectations that have already been pushed higher and higher thanks to tax reform and a steady economy.
However, these companies that are crushing earnings estimates are not getting rewarded with higher stock prices that day.
Instead, prices are basically flat on these strong earnings reports, while companies historically average a gain of more than 1% when they beat earnings expectations.
Some investors are looking at this as an ominous sign that the bull market may be running out of steam.
But I think this is a terrific opportunity to scoop up the companies reporting these impressive results on the cheap.
A Great Time to Buy the Dips
The reason we are not seeing as much follow-through as expected for stocks that are beating expectations is largely because investors are looking at this as being a one-off event thanks to tax reform.
But keep in mind that individuals got a boost from tax reform as well, with an overall lower tax rate that many are seeing in the form of more cash in their paychecks.
Whether consumers realize this or not, tax reform will lead to extra spending in the economy, and we are going to continue to see added investments from corporations as well.
In other words, the benefit from tax reform isn’t just a one-off event, but will have lingering effects that will help boost stocks in the months to come.
Growing Stock Prices
So this is a historic time for corporate earnings, and that’s what helps fuel the stock market.
Growing earnings lead to growing stock prices, and we’ll see that play out over the coming months.
That’s why now is a great time to add exposure on the dips in the market. You’ll want to be ready for the ultimate rebound we will see as companies remain stronger than they have ever been.
Chad Shoop, CMT
Editor, Automatic Profits Alert