Earnings season is underway...
And this earnings season is one you should pay close attention to if you're in the market. It could even play a significant role in my friend and colleague Steve Sjuggerud's "Melt Up" prediction.
Investors are scared right now. Everything that is going on in the economy, from rising interest rates to inflation, has investors jittery. And last week's sell-off didn't help their confidence much.
This earnings season is so important because it could regain some of the confidence investors lost in the market. Or it could bring more volatility. We'll soon find out...
Earnings began when some of the big banks like JPMorgan Chase (JPM) and Wells Fargo (WFC), reported their quarterly numbers last Friday. The banks received a lot of attention because they not only represent the health of the banking sector but the macro picture as a whole.
Investors want to see that loan growth is keeping pace with economic growth. The more banks are lending to consumers and businesses, the better it is for the economy and for stocks.
The results from last Friday were mixed. But there was more good than bad.
Let's look at JPMorgan's recent results...
By the numbers, it had a great quarter. Revenues were up 5%, beating analyst expectations. Earnings per share rose 33%, again beating analyst expectations.
And more importantly, its outlook for core loan growth was 6% to 7% for this year, which was unchanged from April. Many feared slowing loan growth due to economic uncertainty.
It was also encouraging that JPM's net interest margin, a measure of bank profitability, increased five basis points.
However, JPM's stock was down 1.1% Friday. The numbers were solid, but investors decided to focus on something CEO Jamie Dimon said in the earnings call. He praised the strength of the U.S. economy, but he also gave a warning about effects from rising interest rates and trade tensions with China.
You see, this earnings season, folks care less about the latest quarterly results and more about the future outlook or the guidance that a company puts out.
Investors want to know if CEOs think rising costs will hurt profitability over the next few months... how tariffs affect their businesses... the roles interest rates and the strong dollar have on earnings.
So strong guidance can get investors excited about stocks again.
The S&P 500 gained 2.1% yesterday, mostly driven by strong earnings and guidance. More big banks such as Morgan Stanley (MS) and Goldman Sachs (GS) reported solid numbers, and their future outlooks were optimistic.
Software company Adobe (ADBE) led the charge higher on Tuesday, finishing the day up nearly 10%. Adobe told investors it expects revenues for next year to increase 20% and reaffirmed its current quarter forecast.
Streaming service Netflix (NFLX) reported earnings after the close yesterday. And the company did not disappoint its investors...
It added a whopping 6.96 million subscribers globally for the quarter. Analysts only estimated 5.1 million. Streaming revenue also grew 36% year-over-year.
Here's the news that really sent shares soaring... Netflix projected 9.4 million subscriber additions next quarter. Shares are up 9% as of this morning.
Strong earnings – and more importantly, solid guidance – will push this bull market even higher. They can alleviate some concerns that investors have. It can even possibly start the run-up in stocks that Steve Sjuggerud has been predicting.
If you read any of my newsletters, you know that I'm getting cautious about this bull market.
There are a ton of red flags. As a result, I'm getting more defensive... It's always important to buy insurance and prepare for the worst before things get ugly. I'm not telling everyone to get out of the market now – just to be prepared.
Pulling everything out of the market now could be a huge mistake... a mistake worth missing out on potentially 100%-plus gains.
Even conservative investors can make a bet on the Melt Up and feel confident in it. Steve is saying that we may never see opportunities this good again. It's one of the biggest calls of his career. And when Steve puts his name and reputation on the line like this – he's usually right.
Make sure you're watching on October 24. Gains like this may not come around for another decade or so. Steve's even giving away one free recommendation that he thinks could soar by 1,000% in the next few months.
This is an event you don't want to miss. Click here to claim your seat.
What We're Reading...
- Look out for the 'guidance' this US earnings season.
- Something different: Starbucks in Italy.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig and the Health & Wealth Bulletin Research Team
October 17, 2018