The big wait is over as the hit parade of Q3 earnings reports gets started this week – big names included (banks are end of week). The tone of the reports and the reaction of the markets will be extremely important.
Why all the hype?
During this particular reporting season, we usually get a glimpse of what companies foresee in the coming year. We saw a trickle of it over the past couple of weeks from Micron and a few others. Their reports were positive, but more information is always good.
The proof is ALWAYS in the pudding.
What to expect from Q3 earnings reports
Impact from hurricanes. What really interests me about this specific earnings season is how hurricanes Harvey and Irma affected business overall. We can certainly accept the fact that the hurricanes were disruptive in the short term and that business slowed down a bit.
Higher earnings. Since late 2016, the earnings trajectory has been higher. The inflection point came after a multi-quarter earnings recession. I expect a few more quarters of strong earnings growth regardless of policy, but it could change. If tax cuts/reform becomes a reality, we could see a bit more squeezed out in the year ahead.
Strong performance from the bank and tech sectors. Banks and technology companies have been leading the market. The biggest cap names like Apple, Amazon and Google continue to attract investor interest. They all have very healthy gains so far in 2017. Banks and financials have also performed well, even with a flattish yield curve. Demand for loans, a strong investment landscape and improving economic fundamentals have helped to drive performance in some of the bigger names like JP Morgan, Bank of America, Citigroup and Goldman Sachs.
How to find buying opportunities
With such strong market gains over the past couple of months, it has been hard to find good buying opportunities. However, as companies issue strong Q3 earnings reports, it would not shock me to see some names pull back. It is normal for the markets to “digest” strong gains – we call it “back n’ fill”. Be prepared. In this market, they have been short-lived.
Last week, Jim Cramer mentioned that it would not be a bad idea to take a little off the table, raise some cash and be ready for the next pullback – which could be a tremendous buying opportunity. He’s not expecting a major pullback, but he also realizes the markets have moved up sharply for a while now. This would be a good time to be prudent.
I agree with his line of thinking. I also believe the opportunities will be there throughout Q4 – so be prepared.
Want to learn more? Join me and Brian Gilmartin from Trinity Asset Management for this week’s webinar, when we’ll talk about the upcoming earnings season. Sign up here!
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