Breaking News
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

Why Stocks May See A Post-Earnings-Season Rally

By Michael KramerStock MarketsOct 07, 2022 09:02
uk.investing.com/analysis/why-stocks-may-see-a-postearningsseason-rally-200539908
Why Stocks May See A Post-Earnings-Season Rally
By Michael Kramer   |  Oct 07, 2022 09:02
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
US500
+0.75%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
FDX
-0.21%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
JPM
+1.05%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
MU
+2.56%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
NKE
+2.80%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
  • Q3 earnings season is set to kick off next week
  • Estimates have fallen sharply for the third and fourth quarter
  • This could give the bulls a better-than-feared outcome

Believe it or not, it is that time again when companies start reporting quarterly results and providing outlooks. Yes, earnings season will kick off on October 14, when the big banks begin to report results. Expectations for this quarter's S&P 500 earnings seem low and continue to fall. This could be setting the market up for a better-than-feared earnings season. However, what drives the market from here will be if fourth quarter expectations have been set low enough to provide a relief rally.

Earnings Estimates Decline

Expectations have fallen, as earnings estimates for the S&P 500 for Q3 have dropped approximately 7%, from around $59.60 per share to roughly $55.25 per share. It probably helps to explain some of the market price weakness witnessed in the third quarter. Fears of Fed monetary policy played a significant role in Q3 stock market declines, but it can't be ignored that earnings likely played a role too.

S&P 500 EPS Revisions Over 3 Quarters
S&P 500 EPS Revisions Over 3 Quarters

Additionally, earnings estimates for Q4 fell steadily and are now around $57.60, from about $60.70 at the beginning of July. The decline in earnings estimates also suggests that investor expectations have likely fallen, making it easier for companies to provide better results and guidance than feared. Now, it isn't to say that will happen because there is undoubtedly a chance companies report results and outlooks that are worse than expected.

Individual Company Risk

For example, companies that reported at the end of September, like FedEx (NYSE:FDX), Nike (NYSE:NKE), and Micron (NASDAQ:MU), provided disappointing results and guidance, leading to shares plunging. What also sunk these companies were the gloomy outlook they provided.

Micron fared better, given how much the stock had already fallen into results, but expectations had dropped so much that even though the revenue outlook was a big miss; the stock rebounded.

S&P EPS Revisions Over 4 Quarters
S&P EPS Revisions Over 4 Quarters

Therein lies the risk. Despite the overall downward trend of index earnings and low overall sentiment, it doesn't mean that individual companies have seen a reset in their expectations. JPMorgan (NYSE:JPM) will report results on October 14 and has not seen its earnings estimates change materially. They came down following Q2 results but have been basically unchanged. Yes, JPMorgan's stock has fallen sharply since August, but it is at the same price today as in July. This could mean investors' expectations haven't been reset lower for this stock and many others like it. 

JP Morgan EPS Estimates
JP Morgan EPS Estimates

Some stocks will remain at risk of disappointing investors as this third quarter earnings season plays out, but with overall market trends falling, it can also turn out to be a better-than-feared season. If that happens, it could give bulls a reason to try to rally the market, which is not different from what was witnessed in July and August. However, it may not be what companies have to say about Q3 but, more importantly, what they say about Q4, and whether or not fourth quarter expectations have been reset enough.

Disclaimer: Charts used with the permission of Bloomberg Finance LP. This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer's views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer's analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer's statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.

Why Stocks May See A Post-Earnings-Season Rally
 

Related Articles

Why Stocks May See A Post-Earnings-Season Rally

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Godspower
Godspower Oct 07, 2022 13:02
Saved. See Saved Items.
This comment has already been saved in your Saved Items
i need
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email