Corporate Earnings and Lubbock, Texas - Both in the Rearview Mirror

• As financial television continues to scream at us, this week brings with it earnings season for a number of key US companies.
• The idea these earnings are pivotal is comical though, as the nature of a stock market is it looks ahead one to two quarters rather than behind at the last quarter.
• Meanwhile, all three major US stock indexes continue to follow patterns on their long-term monthly charts.

I spent part of this past weekend searching through the archives looking for the last time I wrote about the silliness in US equity markets that is earnings season. The past few days I’ve seen plenty of chatter about how this week; with General Electric, 3M, Union Pacific, Microsoft, Boeing, IBM, and many others announcing LAST QUARTERS earnings, will set the tone of trade in the major US stock indexes. To quote my high school football coach, a former military man who refused to swear (at least in front of us), “Baloney Sauce” (I think you get the idea).

Think about it for a moment. Global investment traders, whose only goal is to make money (setting aside the whole ESG – environmental, social, and corporate governance – argument for now), are going to be buying and/or selling stocks on what happened then rather than looking ahead at what could happen down the road. Makes about as much sense as those ag reporters (we all know who they are) who start every piece with “X market did this because USDA said that…”

One doesn’t have to research to hard to find a common theme within the definition of a stock market – It’s forward looking. An article from Forbes (one example) states, “Here’s an important reminder to keep in mind when you about the stock market: the market itself is approximately six months forward-looking.” Isn’t that interesting? Rather than looking backward at the last quarter investors are looking ahead at the next two quarters. In other words, just an in the ag industry, financial media is telling you what’s easy but not necessarily true. 

Let’s go back to what I wrote in early November after the three major US stock indexes all posted bullish technical reversal patterns on their respective long-term monthly charts. This told me the long-term downtrends that began during January 2022 had come to an end in October, well before the projected turn occurring in June 2023. I also noted the Nasdaq ($NASX) had led the way down, posting a top during November 2021 before losing as much as 38% of its value through the October low of 10,092.94. For the record, the S&P 500 ($INX) dropped 28% while the Dow Jones Industrial Average ($DOWI) lost 22%. 

Theoretically, then, if the three major US stock indexes bottomed during October, it means investors were already looking ahead at Q4 2022 and Q1 2023. One of the points I made in the previous piece I can’t track down is price of the stock reflects what investors already knew about the company’s earnings and what trends were projecting six months down the road. Given that, a hit or miss on earnings has already been priced into activity months before. 

What I’m interested in now has nothing to do with earnings, but what happens with stocks in relation to possible Benjamin Franklin Fish Similarities[i], in this case counting months instead of days. All three indexes closed higher at the end of November before falling again through December. If we are watching a fish scenario play out, we would expect lower closes at the end of both January and February. This would tell us investors are still looking for markets to be gaining footholds out through August, possibly, fitting with the expected June 2023 turn. As of this writing, all three indexes are showing January gains meaning there is room for a late month break. All fitting with existing trends rather than being driven by earnings during quarters now past. 

[i] The Benjamin Franklin Fish Similarity tells us that like guests and fish, markets start to stink after three days (weeks, months, whatever timeframe is being studied) of moving against the trend. 

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