Earnings season is upon us. The party started yesterday morning, when JPMorgan (JPM), Wells Fargo (WFC) and Citigroup (C) all reported their second-quarter results. Bank of America (BAC) earnings are on deck Tuesday, then Goldman Sachs (GS) reports Wednesday.
Now that we’ve gotten the traditional kickoff from big banks (with JPM and WFC delivering upside surprises)…
Does that make it prime time to buy stocks?
Yes – and no.
There’s one more thing I want to see before I ever charge ahead full-speed to start buying a bunch of new stocks.
That one more thing is what kids would call “the vibe.” Or what us investment pros were taught to refer to as “sentiment.”
Sentiment, when it revs to either extreme – bullish or bearish, greed or fear – is what ignites market momentum.
And momentum is the other key part of the play for us as investors.
See, the easiest market to work in is when everything’s grinding higher. Everybody’s happy with what they see from earnings, the economy, the Federal Reserve, and more. And everybody’s making money.
When there’s bullish momentum, it’s actually fairly easy to find market-beating stocks.
The second easiest market to play is the one where everything’s “going to hell in a handbasket.”
Even lousy markets like that can give you confidence in the stocks you are buying – though in a different (and interesting) way.
By targeting the most solid companies – those whose shares were unfairly punished during the crash – you can ride out the storm…and know you’ll probably ride a market-beating rebound on the other side.
Want a recent example? Consider chip giant Nvidia (NVDA), whose shares popped 24% in a single day, May 25, after a stellar earnings report capped by its “guidance for the ages.”
But before that event, NVDA (green line below) wasn’t such an inspiring stock. In fact, it frequently underperformed the broad S&P 500 (orange line). But in retrospect, that was an incredible buying opportunity:
After all, in recent years, Nvidia has emerged as a leader in such innovative sectors as gaming, cryptocurrencies, driverless vehicles and artificial intelligence (AI).
So even when prices are falling, as NVDA did last year, at least there’s movement. Volatility – up or down – is what we want. It’s exciting for the opportunities it creates.
The most difficult market is what we call the “Goldilocks” market: not too hot, not too cold. Because whether you buy the best-ranked stock out there… or take a chance on something that’s been tossed into the bargain bin… nothing will really make you much money.
Another difficult time to pick stocks is when you start seeing a lot of random rotations.
Think back to 2020. All of a sudden, the global economy was turned upside-down. Industries that were supposed to be the most reliable just ground to a halt.
Investors woke up one day to the COVID chaos – and decided the only stocks they wanted were Zoom Video (ZM) and Clorox (CLX).
By October 2020, market leadership was flip-flopping almost daily. Suddenly, small-caps would start getting big; large-caps would get smoked. Industrials would rebound off the pandemic low – the next day, they’d fall.
The sector performance charts start looking like spaghetti on a plate – and we get no clear trends to follow.
That’s what my good friend Louie Navellier calls the “washing machine” market. It just churns on with no rhyme or reason to it. And it’s a very tough one, too, for stock pickers to vanquish.
So, Where Are We Now?
Until this week’s earnings-season kickoff, I thought we might be deep into a Goldilocks market – my least favorite stock-picking climate.
I’ve been hanging back for weeks, holding off on major trades in my Quantum Edge services.
Now, we’re getting what my system needs to work: Data. Earnings data. Institutional investors making their earnings trades, which show up in my system as Big Money buys and sells.
Earnings season – whether the media narrative about it is positive or negative – is always good news for us. Because earnings inject the market with catalysts we can use to trade in and out of stocks.
So, right now, we’re evolving into the first market I talked about: the best one for picking stocks.
My Big Money Index is rising. Money flows are moving continually into tech, industrials, and discretionary stocks, which keeps them firmly at the top of my Sector Ranks:
Tech stocks have certainly cooled a bit lately – taking a breather from their big run in May.
This summer, I’d expect short-sellers to take their shot at chopping some of these tech stocks even more. But ultimately, I still believe stocks will go higher through the end of the year. So, don’t overlook them during the earnings parade. Keep an eye out.
Either way, we’ll find plenty of strong buys, where top-notch fundamentals meet powerful money flows from Wall Street.
Already, I’ve started to add new buys in my Quantum Edge services this week. Several of my favorites are still under my buy limit (so far). If you’d like to see the portfolio and start receiving buy and sell alerts, now’s the time. Click here to learn more.
Talk soon,
Editor,
Jason Bodner’s Power Trends
