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As I wrote last week, the current market action is not what I’d call convincing in terms of a truly renewed bull run. Especially during a holiday-shortened week, aberrations in volume (both spikes and evaporations) can help gauge the “realness” of any move, but I haven’t seen much of that, either.
So why am I still a little wary?
It’s because we have just entered earnings season. And this week we’ll start to see enough company reports to sufficiently say whether the bounce is back in the market’s step. Over the next few weeks, in fact, we’ll get the bulk of company reports — thousands of individual data points we can follow to identify what stocks, industries or sectors are gaining or losing steam.
It’s a tough job trying to follow everything during these periods. But right now — at the beginning of the period — the early reporters are having a big impact on the market as a whole. But is that too hasty? For instance, was Sandisk (SNDK — Rated A)’s report enough to tell us that expectations are too low across the board for flash memory chips? Similarly, was Yahoo (YHOO — Rated B)’s strength enough to assume that its peers have done well during the period?
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| Early reporters this earning season are having a big impact on the market. |
I think the answer is obviously “no,” but it’s a good place to start when looking for additional exposure to tech, as I am doing in the Weiss Ratings Portfolio. Sure, it is definitely too early to tell whether this earnings season will be the tonic the market needs to rejuvenate and give us a spring/summer rally. So I plan to closely watch the numbers as they come in. And I’ll be using the Weiss Ratings as my most important inputs
Of course, stocks can jump if their companies surprise to the upside in this reporting period. Yes, we seem to have some pretty low expectations ahead of us. And the temptation may be to seek out those broken-down, or riskier, names that could give our portfolios the “pop” we all like to see. However, I strongly urge against that type of thinking.
Investing is more a marathon than a sprint. And to build wealth, it pays longer term to seek out not those stocks that are most risky, or even to be too risk averse. What’s needed for a stock that will be a long-term winner is balance. Yes, balance between growth (in earnings, revenues, cash flows), and stability (of balance sheet, dividends, etc.) is what we should look for.
But when trying to follow the thousands of companies reporting over just a few weeks, it is impossible to separate the noise from the news. That’s why my tool of choice is the Weiss Ratings to help guide me to smarter choices for the Weiss Ratings Portfolio. And the same can work for anyone interested in building long-term wealth.
Best,
Don Lucek
