With the biggest earnings week of the season including Amazon, Apple, Facebook, Microsoft and UPS, the FOMC announcement on Wednesday and first look at Q2 GDP on Thursday, this is going to be a super busy week. Heading into the weekend, S&P 4000 or so looked to be a logical pause point for the stock market as I wrote here. Stocks have had a nice bounce off the June bottom and a breather will not be the worst thing in the world.
In fact, it would be more constructive and, frankly, preferred if stocks continued to pause or mildly pull back into the Fed meeting on Wednesday. That could provide a little juice for better move above last week’s highs and perhaps to 4100. The problem is we also have major earnings reports and Q2 GDP in the two days after the Fed meeting.
I am going to repeat some comments I have already made a few times and I will repeat them again this week. Every investor on earth knows that stocks were pummeled through Q2 on the fears of lower earnings. That is already baked in the cake and priced in. The key is to see if companies warn about Q3 or Q4 earnings or offer reduced forecasts. But the absolute most important thing isn’t what the news is, but how stocks react. Do you know what’s more bullish than a stock going up on bad news? Nothing. And the same holds true on the bearish side.
For months I have watched media interviews where the anchor concludes that there is no path to positive news in July regarding earnings. It all has to be bad. As we are learning that has not been the case, no matter how much intuitive sense that makes. Do not get caught up in narratives being spun by pundits and analysts. They’re almost universally nonsense.
One final thing regarding earnings. This is the quarter where companies can easily hide behind macro challenges like inflation and a strong U.S. dollar. The market is more likely to forgive misses in those areas than idiosyncratic ones. Wall Street analysts finally reduced earnings projections precisely at the time when stocks were bottoming. That negativity has certainly been a catalyst for the recent rally.
On Friday we sold levered inverse S&P 500, GDX, NUGT and some QQQ.
