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Dear Fellow Trader:
One of my biggest flaws is that I don’t break things down enough.
I’ve spent the last decade in academia and finance. I have the pleasure and honor of being a post-graduate working with incredible minds in the financial markets.
That said, I can’t wire my house. I can’t build a proper garden. My 6 year old has a better understanding of electricity generation than I do — so I have my limitations.
Some people dedicate their lives to engineering and don’t understand finance. Some great salespeople don’t know the metrics of a balance sheet. We all have unique skills… but sometimes, we talk as if everyone knows the basics.
So today, I will do something I need to do more of in 2024. I need to get back to basics. I need to start at some of the Square Zero starting points to help new investors and traders… and remind experienced investors of how certain things work.
Let’s break down what is facing us in the coming weeks — earnings season.
The Fed, and Then 70 Miles of Dirt
I follow liquidity in the market. Money moves stocks — debt and deflation threaten the system. The Federal Reserve acts as a lubricant to keep the financial engine moving.
The actions of all central banks — as evidenced by the last two years of hyper-fascination — drive the equity markets.
There is the Fed first… then 70 miles of dirt in the world of importance.
And then… there’s earnings season.
You’ve likely heard the term “earnings season” thrown around. But what exactly is it? And why are we so obsessed with it every three months?
In earnings season, publicly traded companies release their financial results for a specific quarter.
It happens four times a year, aligning with the calendar quarters — January to March (Q1), April to June (Q2), July to September (Q3), and October to December (Q4).
Due to 1930s regulations, public companies are legally required by the U.S. government to report their financial performance to shareholders and authorities.
There are five essential elements of an earnings report. They are designed to do these things so investors can decide if they want to keep their money in the organization.
Issue 1: Company Performance
Earnings season provides a unique opportunity for investors and analysts to assess a company’s financial health and performance. By analyzing the income statement, balance sheet and cash flow statement, shareholders can gain insights into a company’s revenue, expenses, profitability, debt levels and overall growth trajectory.
Owning stock in a business is to get a share of the profits. These performance metrics are essential and laid out in corporate filings and the conference calls attended by executives.
Issue 2: Market Expectations
You’ve heard of market analysts. These are the people who cover a public company and provide written insight into expectations for the future.
These analysts often expect how a company will perform during a specific quarter. The set profit, revenue expectations and the combination of all analysts’ projections are called the “consensus” earnings figure.
These expectations are based on analysts’ forecasts, previous financial results, and economic conditions. Earnings season reveals whether a company has met, exceeded, or fallen short of these expectations, which can lead to significant price movements in the company’s stock.
Issue 3: Macro Industry and Economy Outlook
Beyond individual company performance, earnings season offers valuable insights into broader economic and industry trends. Analysts can identify patterns and trends that may impact investment decisions and economic outlooks by analyzing the collective results of multiple companies within a sector or industry.
Issue 4: Forward Guidance
Alongside their financial results, companies typically provide guidance or forecasts for future quarters. This guidance can influence investor sentiment and expectations for the company’s growth potential, making it an essential component of earnings season.
Issue 5: Compliance
This is the one that most people forget, especially in the wake of the Sarbanes Oxley Act of 2002. Companies are required by law to release their quarterly earnings reports. This regulatory aspect ensures transparency and accountability, helping to maintain trust in financial markets.
After Enron and WorldCom’s massive deception at the turn of the century, companies must provide proper accounting. What’s very interesting about this compliance, however, is that private companies don’t need to do this.
Since Sarbanes Oxley, the number of public U.S. companies has declined by roughly 50%, as compliance costs are a disincentive. In addition, please pay close attention to the new SEC rules requiring companies to track their carbon output. This could be a massive deterrent to companies going public in the years ahead.
Conclusion
The information released during earnings season can profoundly impact stock prices and the overall direction of financial markets, making it a must-watch event for anyone involved in the world of finance. Earnings season officially kicks off this Friday with reports from big names like Delta Air Lines (DAL), JPMorgan (JPM) and Bank of America (BAC).
Buckle up. This quarter will be a wild ride.
Chat soon,
Garrett Baldwin
*This is for informational and educational purposes only. There is an inherent risk in trading, so trade at your own risk.
P.S. A Tesla Update You MUST Read Before the Weekend
If you’re holding shares of TSLA or it’s a stock you trade a lot…
You must see this because something incredible has happened with TSLA…
And it’s not getting as much attention as I’d expect.
Tor the first time ever, TSLA has overtaken the S&P 500 in terms of investment dollars.
That’s right, TSLA is seeing MORE investment cash than the entire S&P 500.
This is a bullish signal for 2024, especially considering it’s seeing more investment dollars than NVDA…
AAPL…
And the QQQ combined…
When that much money moves into a single stock, big things can happen.
Which leads me to my point…
Our resident Tesla expert Lance Ippolito is exploring a new opportunity inside shares of TSLA this very week…
He’ll be talking about a couple strategies to deploy for TSLA, plus, if it’s a stock worth trading in January.
If you’d like to hear what he has to say just click here.
Check Out His Emergency Briefing Here!
Follow Me on Telegram!
Want to get a link to my TradingPub articles and trade alerts as soon as they post? I’ve got you covered!
Telegram is a messaging app that doesn’t cost you a thing, and getting access is as easy as 1… 2… 3…
- Download Telegram on your mobile device (Before you can add Telegram to your desktop computer, you must download the application on your phone and create your account
After the download is complete, please create an account.
NOTE: You can manage your privacy settings by clicking “Settings,” and then “Privacy & Security.”
- Download Telegram on your desktop
Once you’ve downloaded Telegram onto your mobile device and created your personal account, you can download it onto your desktop computer.
To download onto your PC, go here.
To download onto your MacOS, go here.
- Then add the Garrett Baldwin channel and you’re set: https://t.me/+9_jjnFuAvno0MjNh
See you there!
Garrett
Disclaimer:
The material in this document is for informational purposes based on our proprietary research. It is not an offering, specific recommendation, or a solicitation of an offer to buy or sell any securities mentioned or discussed herein.
Any performance results discussed herein represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment.
Due to the timing of information presented, any investment performance reflected within this document may be adjusted after the publication and distribution of this material. There can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this communication will be profitable, be equal to any corresponding indicated historical performance levels or be suitable for your portfolio.
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