Finding the Market Focus
In yoga, “drishti” means where your eyes focus. Depending on how you’re contorted, your drishti (pronounced drish-dee) could be your inner knee, or it could be the horizon. The idea is that by focusing on a single point you are able to harness your energy and “see” the world more clearly.
As we enter the zany and entertaining earnings report season, it’s important to think about where investors focus their gaze. While the short-term numbers are important, especially with earnings surprises, they are the drishti equivalent of contemplating your inner knee—a very circumscribed view.
But it’s easy to forget during earnings season that the stock market’s drishti is always on the horizon. Company guidance about its future commands the gaze of serious investors, and stocks are typically priced based on future.
I’ve read several articles over the weekend confirming the market’s shift in focus from first or even second quarter earnings out toward the second half of the year. Market seers note that by mid-2016 we will enter a period where the dollar will be weaker than it was the previous year. The dollar, which strengthened versus almost all our trading partners in 2015, put a crimp in the profits of multinational companies last year. As we cycle over that period the pressure from foreign exchange will lessen.
While most of Profit Catalyst Alert stocks have little international exposure, the idea that investors must always be looking out toward future growth is important. As we enter the second half of 2016, valuations will start to emphasize growth in 2017 and even prospects for 2018. I’ll be on heightened watch for forward guidance from the companies I’ve recommended.
It will be a busy season for sure. Below for subscribers I discuss a positive regulatory event for SolarEdge and dig into the possible cause for recent weakness in Vera Bradley. During earnings season do not be surprised to see an update alert issued if significant news is reported on one of our stocks. These alerts will not always require trading action will keep you in the loop.