• “Netflix Earnings Sends Stock Surging,” MarketWatch, Wednesday, October 17

  • “Goldman Sachs Beats Estimates for Third-Quarter Profit,” CNBC, Tuesday, October 16

  • “Strong Travel Demand Lifts Delta Profit and Revenue,” CNBC, Thursday, October 11

As these three recent headlines above suggest, earnings season is off to a strong start.

So far, 68 companies in the S&P 500 have reported third-quarter earnings. Of those, 43 (63%) beat their estimates on sales (the top-line). And 60 (88%) beat profit estimates (the bottom-line).

And the markets have reacted positively…

From their October 11 lows, the S&P 500 and the tech-heavy Nasdaq are up 3.2% and 5.3%, respectively.

On top of this rally, CEOs are bullish about the economy. This is another strong sign that we’ll see higher stock prices over the next couple months…

And as we told you last week, investors who ignore the noise will make a lot of money.

Ignore the Fear

Last week, the Dow Jones Industrial Average, S&P 500, and Nasdaq each fell about 4%.

While mainstream outlets like CNBC, Bloomberg, and Forbes blared “markets in turmoil” across their websites… we were helping you make money. We told you that much of the volatility was due to an earnings “blackout period.”

Here’s what we wrote then:

Every three months, companies release their quarterly earnings reports. A positive earnings report can send a company’s stock rising. And a negative report can send it tanking.

Company executives may have access to inside information in these reports before they publish them.

So the Securities and Exchange Commission (SEC) restricts publicly traded companies from trading their own shares during the periods just before and right after earnings.

Wall Street calls these “blackout” periods.

Most companies release earnings in April, July, and October. Here’s why that’s important: The September blackout period for stock buybacks is over.

And when these blackout periods end, the market pops soon after…

Admittedly, we were a few days early on our call… The market tumbled on October 12. But no one can perfectly time the market.

Nevertheless, we’d rather be a few days early than a few dollars short. And like we told you last week, we’re about to see billions of dollars head into the market…

$250 Billion Headed Back Into the Market

Companies are sitting on a lot of dry powder—about $250 billion worth, to be exact.

You see, companies are using President Trump’s tax breaks to buy back shares at a breathtaking pace. According to investment firm Goldman Sachs, we’ve seen a record $762 billion in buybacks in 2018. At that rate, we’ll easily exceed $1 trillion this year.

After the month-long pause due to the blackout, these buybacks are about to continue. And CEOs are ready to open the spigot.

Let me explain…

One of my favorite ways to find out what’s going on in the markets is to tune in to earnings calls. And many of them are bullish this quarter. For example:

  • Bank of America crushed its earnings report. On his earnings call, CEO Brian Moynihan said, “Responsible growth, backed by a solid U.S. economy and a healthy U.S. consumer, combined to deliver the highest quarterly pre-tax earnings in our company’s history.”

That’s what we’ve been telling you for years now—the economy and consumers are strong. And that’s reflected in bank profits… People are paying back their loans.

  • On his call, Stuart Miller—executive chairman of homebuilder Lennar—said, “The basic underlying fundamentals of the housing industry of low unemployment, higher wages, and low inventory levels remain favorable and are likely to support longer-term strength in the housing market.”

A strong consumer means stronger demand is ahead for homes.

  • Semiconductor company ASML Holding also had a good quarter. On his call, CEO Peter Wennink said, “We currently see strong demand for our products… We see strong momentum continuing, as evidenced by our Q3 order intake.”

Semiconductor companies are an important, forward-looking indicator. That’s because the chips they make go into almost every electronic device… Positive news from this industry is a good sign for the overall economy.

I could go on with other examples. But you get the picture…

Putting It All Together

At the Daily, we put the pieces of the puzzle together. Right now, the puzzle shows a strong economy and confident companies. And that means higher stock prices ahead.

Now, that doesn’t mean the market will go straight up. Expect a lot of volatility next week.

But we’re seeing a lot of buying, and we expect corporate buybacks to ratchet up again… In fact, Tuesday’s rally in the S&P 500 was the broadest since March 26. The market bottomed a week later from then… only to soar higher the next couple of months.

History looks ready to repeat itself.

Regards,

Nick Rokke
Analyst, The Palm Beach Daily

P.S. Use the time before earnings seasons to add to your favorite positions. That’s what I’m doing.

MAILBAG

Comments about Wednesday’s essay, “President Trump Is Right About the NFL,” fill today’s mailbag…

From Rose G.: One of my friends isn’t attending football games anymore because there are so many felons playing football. Most of the players are poor role models.

From Joe R.: I read your essay about President Trump and the NFL protests. From my perspective, the owners could and should put an end to the kneeling protests. The players are employees… and the “owners” have the right to dictate that the “employees” follow a dress code and conduct rules while at work.

When they violate the rules, they should be subject to disciplinary actions that could/should include temporary suspensions with and without pay. I guess the players are lucky that I do not own an NFL team.

From Sheldon R.: Donald Trump lies too much. He likes to hurt and mock women who don’t like him. He doesn’t understand why the players are kneeling. You believe what is right for you… That’s what is great about America.

In the long run, this will all be forgotten, and the NFL will still be here. Trump will go down as the worst president in history. Believe me.

From Mike D.: Simple… When the NFL owners and commissioner require respect from their players during the anthem and televise it, I’ll watch. Until then, forget about it. I haven’t watched a game or the Super Bowl since the kneeling began… and will continue to refrain. College ball? Different story.

From Cory P.: At the end of the Trump/NFL article, you asked “Do you think every patriotic American should take a stand against the NFL by joining the rising and profitable tide of esports?”

In the essay, you laid out your case dispassionately with sound logic and facts. So why end it with an unnecessary and provocative question?

My answer: I think those who are interested in your research and favor your conclusion should invest in esports. Patriotism and the NFL has nothin’ to do with it. Your case = Good. Your question = Not so good.

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