Fundamentals Matter!

Earnings continue – what to look for!

Whether I am long term investing or swinging trades (months, weeks, or days) I always look at fundamentals. To me they are a very important part of my investing (and trading) puzzle. Of course, it isn’t as pertinent to day trading or trending trading. I use charts extensively to identify ideal entries and exits for trades and I recommend that as well. However, here we will discuss fundamentals and especially this week which has many upcoming earnings for MEGA Caps which can help foretell what is to come.

Will we have an earnings recession? Possible. Margins are compressed and have been for some time with higher COGS and operating expenses (some still rising) plus NEW fees. Revenues have been upheld more by inflation (increased prices) rather than volume and output. If inflation comes down significantly, we will most likely have a greater, more severe recession as a result. Although it appears that inflation will be sticky due to services and wages. Services are a function of employment and the labor market is very tight with lower labor force participation from pre-pandemic.

Earnings recession is 2 declining earnings Qs back to back Y/Y.

What to watch during earnings? 3 simple areas.

• Earnings matter. EPS. It isn’t just about revenues but the margins between the revenues and expenses and the earnings each shareholder receive. How are these EPS compared to last Q and same Q last year? Are they increasing or decreasing?

• Margins matter. How is the company handling its expenses and maintaining its margins? Are they streamlining their processes to become more efficient? Are they restructuring and/or reallocating their resources? Are they using innovation to increase productivity?

• Guidance matters. What are their plans for the future? Are they raising their guidance for next Q and the fiscal year? What do these companies see for the future from their microeconomic perspective? What does it say about this business and economy?

As you can see, we can learn a lot from earnings. More than just where to invest but the economy overall. Watch and learn.