Investors Start to Anticipate the Reaction to Third-Quarter Earnings
Big banks will start reporting in one week, prompting investors to consider their positioning for the news.
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Following another day of new all-time highs for the S&P 500 and Nasdaq 100 (QQQ) , investors are looking ahead to third-quarter earnings results. A few are hitting this week, but the big guns start to report in one week, when major banks such as JPMorgan Chase (JPM) and Goldman Sachs (GS) will post results.
Big technology reports won't start for about two weeks, but both the Wall Street Journal and Bloomberg are raising the question Thursday morning whether upcoming earnings will indicate if the artificial intelligence-fueled rally has further to run, and provide insight into the health of the broader economy.
Once again, investors will be dealing with a potential sell-the-news situation. There have been numerous situations this year where there has been a big run-up in anticipation of news, but rather than sell off when the expected results were announced, the market kept running higher. The psychology of "sell the news" has not worked in part because so many investors see it coming.
Another issue to consider is whether investors will make defensive moves before earnings season starts, aiming to front-run a potential negative reaction to reports. The more stocks rise in the next week, the greater the risk of a negative reaction to earnings.
The biggest dilemma facing investors currently is the numerous stocks that are already extended. Putting new cash to work is tremendously difficult if you don't want to chase strength. On the other hand, this momentum is showing no signs of slowing, and investors have embraced a Goldilocks economic view that is providing plenty of fuel.
My best advice continues to be to stay focused on price action in individual stocks and not worry too much about timing the indexes. The business media focuses on the indexes because it's simplistic and easy, but the individual stocks that you own should be your guide to the actions you take.
We have flat action early on Thursday.
At the time of publication, Rev Shark had no positions in any securities mentioned.
