Predictions for Earnings Season Look Negative – Commentary

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The team at iVest+, the next generation trading platform for stocks and options traders, is predicting a choppy to negative response from the market to the upcoming earnings season.  Insights include:

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With the bond market now focused on rate hikes and inflation, it is likely that stocks in many key sectors will issue forward guidance that is not as positive as the results of the last two years have been.

Higher interest rates have consequences to lending and borrowing, especially in key sectors like the technology and banking sectors. While higher rates might sound beneficially to banks, which benefit from the spread between lending and savings rates, the real issue is that higher rates lead to less lending overall. In a similar vein, technology companies often use short-term money to fund their operations and especially supply chain needs, and higher rates will likely have an impact on pricing there.

Earnings Could Have Quite An Impact On The Markets

With all of these factors in mind, we expect to see a lot of companies issue downward or at least more conservative guidance. With nearly 70% of corporate America reporting their Q4 earnings over the next three weeks, this could have quit1e an impact on the markets. In real terms, we are still trying to come “out of” the COVID economy and get back to a more normal one. Given the loose monetary policy that the Fed employed during COVID and its impact on the markets, it seems likely that a reversal of that policy is going to have significant consequences moving forward.

We anticipate that while some companies might still have a positive outlook, the majority of them will see negative results to their stock prices based on their future earnings guidance. Holding stocks through earnings is always a risky proposition, but this might be a quarter where smart investors either stay aside or else use options instead of stocks to control their risk. If this goes really badly, we could see a major decline in the markets as the air comes out of the COVID bubble.