ARE SECOND QUARTER EARNINGS GOING TO DECIDE THE NEAR-TERM DIRECTION OF THE MARKET?

DJIA 52-wk: +15.91% YTD: +6.13% Wkly: +1.59%?

?S&P 500 52-wk: +24.64% YTD: +17.73% Wky: +0.87%

?NASDAQ 52-wk: +30.36% YTD: +22.56% Wkly: +0.25%

?Invesco S&P 500 Equal Weight ETF 52-wk: +10.83% YTD: ++6.80% Wkly: +2.96%

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CPI REPORT:???

“The softer CPI print reinvigorated hopes of a soft landing, driving a rotation into small-caps and value”, write analysts at Pavilion Global Markets.?

INVESCO S&P 500 EQUAL WEIGHT ETF:??

Despite this week’s strength, still could not reach—let alone take out—its record of $169. For now, at least, that signals there aren’t enough buyers to help push the fund to a new all-time high.?

But the conditions for continued gains in tech remain in place.? A slowing economy means there’s a limit to areas, while the S&P 500 tech sector is expected to grow earnings by 15% annually over the next two years, according to FactSet, as the adoption of AI translates into more business spending on advanced software and more chips to support it.? “The fundamentals don’t support a broader sustained rotation [away from tech],” says Chris Harvey, head of equity strategy at Wells Fargo. ?

Best Way to Make Money on Earnings Surprises ZACKS WEEKEND WISDOM:

By: David Bartosiak July 13, 2024

This could be the last earnings season before rate cuts. The stock market has pushed up to all-time highs as investors anticipated the end of the current rate hike cycle. Fuelled by monster tech stocks like NVIDIA and Tesla, the tech-heavy NASDAQ has been hitting new highs nearly every day.

With this frothy, borderline "bubbly" action happening, there is a growing crowd of detractors looking for a rotation. The anticipated rotation so far has been out of mega cap tech and into the small caps. It's a vote for the future of the US economy.

The irony is that economic data appears to be softening, with joblessness creeping up and earnings rolling over. Now the market is looking to the next round of earnings to set the stage for the end of the year. The A.I. theme has dominated the headlines this summer, but that focus is likely to shift in the near future.

That is the story for the overall market. As for individual stocks, there will be big winners and losers depending on the strength of their reports. This brings to mind one of the most confusing things about earnings season:

Why do some stocks skyrocket on a positive earnings surprise while others fall off a cliff?

In this article we are going to tackle this little understood issue. Better yet, I will share with you two ways to profit from surprises this earnings season. More on that later.

1) Estimates vs. Expectations:?The standard definition of an earnings surprise is when actual earnings comes in higher than earnings estimates. But those estimates are the?"published"?numbers from the brokerage analysts. Quite often investors tend to develop their own unique set of expectations that can differ greatly from the Wall Street analysts. If there is too much optimism ahead of the release, then actual earnings will need to be a blowout in order to appease investors' inflated expectations. This is the most common reason why some stocks fall after a?"supposed"?earnings beat.

2) Quality of Earnings:?The highest quality earnings come from having robust revenue growth. This means that the company's products or services are in high demand and should stay that way into the future. However, these days far too much of the earnings being reported is generated from cost cutting and other "accounting gimmickry". The problem with that is that the benefits of these moves don't last. When the market gets a whiff that the earnings are unsustainable, no matter how strong the beat, shares will most likely drop.

3) Forward Guidance:?Plain and simple, when you buy a stock you are taking an ownership stake. And what owners of companies care about is the stream of future earnings. So if a company beats earnings for the quarter just reported, but warns that future quarters will see lower earnings, then that stock will go down?and go down fast.

2 Potential Ways to Make Profits on Earnings Surprises

So now that we have outlined things that can go wrong after an earnings surprise, let's shift gears and talk about something even more important; How to potentially turn a profit from earnings surprises. Here are two ways to go about it.

Good Way:?Buy shares in any company that had an earnings surprise and rose the day following the news. These stocks experience what academics call the?"Post Earnings Announcement Drift". Studies clearly show that these stocks usually outperform the market over the next 9 months. Conversely, you could be inclined to sell any stock in your portfolio that misses its earnings numbers as it may be likely to underperform the market for the next few quarters. The downside of this approach is that there are literally thousands of stocks to choose from every quarter.

Better Way:?Find stocks where the earnings?"whispers"?tip you off that a big surprise is coming. Buying the shares shortly before the announcement could potentially allow you to enjoy quick gains of 10%, 15%, 20% when the earnings surprise is officially reported.

The concept of finding a profitable source of earnings whispers has long been the Holy Grail of stock investing. Many experts have tried and failed to make this work. In fact, we had been researching this for countless years.

Early on we found clues that identified stocks more likely to surprise, but not necessarily rise in price. It wasn't until the summer of 2010 that we discovered the right combination of elements. Since refinements were made in 2014, the system has correctly called POSITIVE surprises a whopping 80% of the time with the vast majority accelerating in price.?

MONDAY AND TUESDAY FINANCIAL EARNINGS:

Black Rock & Goldman Sachs on Monday, BAC, Schwab, and MGS on Tuesday.? U.S. Bankcorp announces results on Wednesday, Blackstone on Thursday; AMEX closes out the week on Friday.

TUESDAY MEGACAP COMPANIES IN HEALTHCARE & TECHNOLOGY:

UnitedHealth Group releases quarterly results on Tuesday, followed by ASML and JNJ on Wednesday.? ABT, NGLX Novartis, and TSM announce earnings on Thursday.

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THIS WEEKS INTERESTING SECTOR PIECE:

How the U.S. Presidential Election?Could Affect Investors and Markets

Excerpt taken from Mitch on The Markets Online Edition

June 29, 2024

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U.S. presidential election years tend to be drama-filled and emotionally charged. For some investors, that means more stress. But I, Mitch Zacks, recommend pushing in the opposite direction, by recommitting to being dispassionate, disciplined, patient, and focused on the long term. Even though it often feels like everything is riding on the outcome of the election, history reminds us—very clearly—that election results have not driven market results over the long term. The economy and corporate earnings do.

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For as long as I’ve been an investment manager, there has been investor sentiment that?if candidate so and so wins the election, it will be terrible for the stock market. But a look at past election year returns—as well as longer-term returns for U.S. stocks—demonstrates that such an outcome has never materialized. In the cases where we have seen post-election downturns, it has been tied to broader economic factors, not the election or re-election of the president.

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Since the inception of the S&P 500 in the 1920’s, there have been 24 U.S. presidential elections. In 20 of them, the S&P 500 registered positive total returns. In the four instances when the stock market fell (highlighted in yellow below), the U.S. economy was in the Great Depression, the early days of World War II, the 2000 tech bubble, and the 2008 Global Financial Crisis. The last time the stock market fell in a presidential re-election year was 1940.?

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It is common in presidential election years for investors to assume their political party is better for the stock market. But history says the stock market goes up regardless of how power is divided. Looking back at just the last eight years, some investors may have held back on equities during President Trump or President Biden’s respective tenures, based on politically driven perceptions about their ability to lead. But that would have been a mistake. Stocks have risen substantially over the past eight years under both administrations, and currently trade near all-time highs.

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This is not to say that politics and policies do not matter to economic growth and corporate earnings. They do regulatory changes, tax law changes, energy policy and foreign policy would be fundamentally different depending on who wins the 2024 election. But an important point for investors to consider is that markets are already familiar with both candidates and their policy proposals, since both candidates have been president before. There’s still plenty of uncertainty swirling around this election, but perhaps not as much as some investors think.

At the end of the day, no one knows how the election will unfold. But I do know and believe that changing your long-term strategy because of a short-term unknown is not a is not a prudent approach – it hasn’t been throughout history, and I do not think it would be prudent today.

AMEN! Richie

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