Earnings Season Begins | The Investors Edge

By John Stewart, chief investment officer at Farmers Trust Co.

Week in Review: Geopolitical Threats Intensify

As if the war situation in Ukraine weren’t enough to worry about, we now have Hamas, among other bad actors in the Middle East, waging war against Israel, who is understandably retaliating in an attempt to damage their enemies’ war making capabilities.

While there is some historical evidence that the onset of wars rarely causes lasting damage to the U.S. stock market, there are plenty of other factors at play, which in aggregate warrant some caution.

War does tend to be inflationary, which is a problem we’ve been trying to deal with for the past couple of years – and this past week’s consumer price index showed current levels of inflation are still well above the Fed’s desired range.

This also comes at a time in which the U.S. fiscal position is incredibly weak given elevated levels of government spending and borrowing.

All of this continues to put upward pressure on interest rates, which makes the outlook for the economy and the stock market far from certain.

Earnings season starts next week, and should provide more clues to where businesses see things heading as we move into next year.

Featured Insight: The Road Less Traveled

As an investor, it is important to look for opportunities that others overlook.

Why is that? Because the things that others overlook tend to be cheap relative to their intrinsic value. Classic supply and demand.

Most novice investors look at investment opportunities as either “good” or “bad” regardless of the price they’re paying, but the price is what really matters.

The best business in the world isn’t worth paying a price that’s so high that it makes it impossible to profit from over time.

Stocks that are widely sought after tend to have prices that are high relative to their value – and that’s a condition that can persist over long periods of time, but in the long run, you will be best served to find the diamonds in the rough that other investors have left behind, allowing you to pick them up for pennies on the dollar.

Looking Ahead: Earnings Season Begins

Another earnings season is upon us, and we’ll find out how companies performed from July through September.

While that earnings information is important, it is also information about the past, and stock prices move in anticipation of the future.

Unexpected changes to businesses future outlook, what will happen in the first and second quarters of next year, is what matters most.

For now, the earnings outlook for the next couple of quarters has been holding up extremely well, justifying what has been a decent year for stocks in 2023.

As long as that remains the case, stocks can remain resilient even in the face of all the macroeconomic threats. We’ll learn more about whether or not that is indeed the case starting next week.

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