Last week earnings season began when JPM released earnings that beat purposely lowered estimates to cause the stock to gap up. It was a triumph for stock market bulls as it helped take the S&P 500 back up above 2900.
Because JPM is also in the DOW it helped push the DOW up too.
There was a lot of excitement on Friday, but overall Wall Street analysts are expecting earnings season to actually be bad this month.
FactSet expects earnings for S&P 500 companies to actually post a 4.2% decline from a year ago once this earnings season is over.
Global slowdown with a small bit of blame put on tariff woes is what they say.
Remember a year ago in June the global yield curve inverted. We saw awful industrial production numbers from Germany last month and the Baltic Dry Index collapsed earlier this year.
The BDI index is a measure of what shipping companies charge to transport goods across the company. Their prices are driven by pure demand and when demand for shipping drops the BDI index falls
people buy stocks for good earnings growth, but the earnings growth isn’t going to be there.
Does this mean you should sell?
In the long-run there will be a new bear market decline much like we saw at the end of last year, but we are not on the verge of such a moment now.
It could happen this Fall, but it’s not starting this month so no need to worry about it.
In right now computers and traders front-run future news faster than ever before and what they are buying into is the idea that the Federal Reserve will lower rates at the drop of a hat now and will even begin a new QE program.
That’s why we are seeing both stocks go up (even with no earnings growth) and corporate bonds go up too – in fact that is where the massive front running is focused in at the moment creating a distortion.
It’s a weird situation, but everyone is front because when computers move markets humans have to go with them to keep on pace.
So if you buy stocks now know you are buying based on this trend of future Fed action and not an earnings growth story.
Ironically I’m doing this myself, by buying in sectors, such as mining stocks, that will benefit the most when the Federal Reserve begins a new easy money regime.
Buying stocks on news, tips, and rumors no longer works in a market like this, because all that matters now are the trends. And you have to be on top of when they change in order to jump out in time.
And to know what to buy too.
My book Strategic Stock Trading can help you do this. This book lays out the simple methods and key indicators I use to keep on top of the trends of the market and to identify the best stocks to buy.
If you take advantage of my special book giveaway offer you’ll also get into my private trading group and receive my coming buy alerts to take advantage of this Fed front running trend.
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