Recently, investors’ concerns over earnings and revenue short-falls going into Q4 and 2023 have taken center stage as they look for signs of an “earnings recession” – meaning year-over-year declines in earnings numbers.  How are 3rd quarter earnings unfolding?

In looking at 3rd quarter earnings, according to FactSet, 72% of reporting S&P companies have reported earnings above expectations – though it’s still early yet. Additionally, 70% have reported positive revenue surprises.

We regularly keep a close eye on earnings and, more importantly, on the reaction that stocks have to earnings reports. Movement during after-hours trading immediately following a company’s report can be significant – sometimes trading at 5% or more above or below their closing price from that same day. Many times, however, a stock’s direction will reverse during the next day’s regular session. We also see impacts on a stock’s price when professional analysts weigh in on the reports, as they may update their projections of future earnings and re-issue their ratings on the stock.

How are the short-term technical indicators shaping up?

The HILO (the High-Low Index), which measures new 52-week highs versus new 52-week lows, saw a continued advance last week.  Its current reading is 28%, still sitting below that 30% number that tends to indicate the time is ripening for buying.

Add to that stocks above their 50-day Moving Average, which is an indicator measuring the average price over the last 50 days, halted its decline in early October. It then reversed direction on 10 /18, and went into “Bull Confirmed” status, an important trend change signaling more consistent upside momentum, on 10/21.

We like to see these two short-term indicators emerging in tandem, as it increases our confidence in trend changes by providing multiple sources of verification.

Fed minutes will likely reveal internal debate on a potential pause or pivot, and technical indicators (particularly short-term ones) are confirming markets are now focusing on the view from the windshield as opposed to the rearview mirror.