Earnings Will Now Set the Market’s Tone

Shah Gilani|July 13, 2020

With markets working themselves higher last week, higher since the March lows, higher forever for the Nasdaq Composite, you could say the good news is behind us and what’s up next will be weightier.

When I say good news, I’m not talking about the bad news all around the country showing dramatic and frightening coronavirus spikes, I’m talking about most of the economic indicators coming out ahead of analysts’ expectations over the past four weeks. Not all of them mind you, but most of them.

Why? Because analysts knocked down every number, every expectation, every hope they had.

And they were wrong. They were too pessimistic.

Investors have come to recognize the difference between pessimistic prognostications and what’s on the other side of all the bad news everyone already knows was and still is out there. What’s on the other side is getting back to some semblance of normalcy, getting back to getting out and spending, getting into stocks because there’s another side to the doom and gloom of this pandemic.

There have been plenty of days over the past few weeks when markets took their lumps on bad news days about infection spikes and deaths. But there were more powerful up-days when there’s been better than expected economic news and good news on virus treatment prospects or vaccine prospects.

Last Friday was no different. With investors early in the pandemics initial days and weeks unwilling to hold stocks going into the weekend, last Friday with positive news on data about remdisivir showed how willing they are now to hold stocks over the weekend. And that trend isn’t new, it’s been that way for eight out of the last ten Fridays. Investors are willing to hold on.

The Dow Jones Industrials ended last week up 248 points, which was enough to move the benchmark up 0.96% on the week. The Dow’s now 3,493 points or about 13% away from making new all-time highs.

It’s got some resistance at 27,000 to get above, which everyone will be watching.

The S&P 500 rose 1.76% last week and is about 6.5% away from making new highs.

It’s got resistance at 3250, so keep an eye on that level.

The Nasdaq composite, as the say in Brooklyn, fuggedaboutit, is the honey badger. It don’t give a damn, it just keeps on clawing and chomping its way to new highs all the time.

So far, so good.

The market’s been getting over virus setbacks, getting over knocked-down economic expectations, and been bouncing around and headed higher in an almost strange, almost surreal, vacuum.

That’s changing this week.

Now investors are going to get real numbers, real data, real revenue, and real profit and loss numbers. Now they’re going to get a reality check on the companies they’ve bet on.

Analysts, as wrong as they’ve been, are forecasting revenues will be down 44% this reporting quarter and earnings will be down 12%.

We’ll see.

With knocked-down earnings and forecasts an easy hurdle to get over, the market should like what it sees and hears.

The tone should be positive, if not forgiving and hopeful.

The only thing that will change the positive tone better than expected earnings should give the market, is if the tech darlings disappoint badly.

If they get pummeled because they miss by wide margins, the vacuum we’ve enjoyed climbing higher through could become a hole we sink back into.

It’s about the tone this earnings week and season. Listen and act accordingly.

Until then,

Shah Gilani