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Why is the S&P 500 (SPY) ahead, and what are the clues as to what the stock will do next? Steve Reitmeister shares answers to these timely questions, including previews of his four ETFs and his five stocks that he currently recommends to investors. Read below for the full story.
Earnings season is heating up and will be the center of attention for some time before the next rate hike decision on July 26th comes into the spotlight.
So let’s examine these two key events and see what they mean for the market outlook.
Market commentary
First, let’s take a quick look at the recent price movement.
As more and more bears throw in the towel and hit the buy button, some shout it at FOMO rallies. Others call it a meltup because any downfall never leads to a big upswing…but it doesn’t look like it’s going down that much either.
Regardless of what you want to call it, the situation is bullish and investors are wise to invest in the best stocks. The good news is that quarterly earnings season provides investors with an important health check to truly judge the best stocks.
Let me share the insight of my longtime colleague Nick Laich. He does an excellent job of analyzing company earnings insights. Earnings Scout.com.
On Thursday morning Nick said:
- “Eleven of the 16 S&P 500 companies that reported this morning beat their EPS guidance for the second quarter of 2023, but only nine exceeded their revenue targets.
- So far, we have collected Q2 2023 earnings results for 77 S&P 500 companies.
- 78% beat EPS expectations, just below the three-year average of 80%.
- Only 62% exceeded sales targets, well below the average of 73%.
- After the report, 51 of the 77 companies lowered their Q3 2023 EPS forecasts slightly more than they did in last year’s quarter.
- The market multiple surged to 21.07x the S&P 500’s 2023 EPS forecast (spy) EPS expectations fall and prices rise.
- At the market bottom on October 12, 2022, the equivalent PE multiple was just 15x.
- Our research justifies a multiple increase, but if forecast trends don’t continue to improve, stocks are at greater risk of downside. ”
I’ve highlighted three important bullet points. For now, investors are pretty buoyed given the price action largely based on signs of slowing inflation that should lead the Fed to cut rates in the future. Investors therefore find it all too easy to glorify headlines that earnings have outperformed.
The problem with this superficial approach is that it has always served well for future-focused investors. As such, revisions to earnings forecasts tend to be more accurate predictors of future stock prices than past forecasts that are above or below expectations.
So with 66% of companies (51 out of 77) lowering their earnings forecasts for the third quarter, it begs the question of how rampant buying activity should be right now. This is especially true when combined with his two other items I’ve highlighted, which show that valuations aren’t cheap and could cause backlash down the road.
No… I’m not saying we’re going back to a bear market. It’s just that the market often does the dance of two steps forward and one step back. Or what others think of as the digestive stage after eating a large meal.
So, given the big rally ahead and the less impressive results, I think we’re at least setting up a consolidation period below $4,500…and perhaps a modest 3-5% drop to rest before the next rally. And given the biggest daily selling in a while, the pullback may have started on Thursday.
The next Fed meeting on July 26 will also weigh on the market outlook. Another 25 basis points hike is a logical conclusion. But given the steady decline in inflation in this month’s CPI and PPI reports, more investors believe this will be the last rate hike.
Investors will be very interested in how many Fed members say they think more rate hikes are needed. And whether there will be any change in their pledge not to cut interest rates until 2024.
“” signsDovish TiltThe announcement would be very favorable for stocks. On the other hand, any indication that they stick to their hawkish rate hike plans could trigger the aforementioned backlash.
Regardless of market direction, our goal is to always focus on the best investments so you can do the right thing. That’s exactly what we’ll do in the next section…
what next?
Take a look at my current portfolio of 5 stocks and 4 ETFs hand-picked to outperform the market in the coming weeks and months.
This is all based on my 43 years of investment experience, which has seen bull markets, bear markets, and everything in between.
If you’d like to learn more and view nine of our handpicked deals, click the link below to get started today.
Steve Reitmeister’s trading plans and recommendations >
I wish you success in your investment.
Steve Lightmeister…but everyone calls me Raity (pronounced “Raity”)
StockNews.com CEO, and Editor, Light Meister Total Return
SPY shares were trading at $453.51 a share Friday afternoon, up $1.33 (+0.29%). Year-to-date, the SPY is up 19.48%, compared to the benchmark S&P 500 index’s gain of 1% over the same period.
About the Author: Steve Lightmeister
Steve is better known to StockNews readers as “Reity”. Not only is he the CEO of the company, but he also talks about his 40 years of investment experience in his world. Lightmeister Total Return Portfolio. Read on for more on Reity’s biography and links to his latest articles and stock picks.
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