Stocks ended 2021 at record levels but 2022 has been a different story with U.S. stocks down more than eight percent since the start of January. Canadian stocks on the other hand, which are being juiced by strong commodity prices, are up more than three percent in 2022 and continue to trade near record levels.
With first quarter earnings season underway investors are hoping strong results will lift stocks higher. For that to happen though, stocks are going to have to report pretty strong results.
How Are Canadian and American Stocks Doing?
Stocks have been trading mostly lower on the heels of higher bond yields. The yield on the 10-year U.S. Treasury is at 2.85%, above its pre-pandemic era high of 2.83%. Bond yields have been on the rise with investors expecting the Federal Reserve to start reigning in its bond holding to fight off inflation that is at its highest level in 40 years.
This is bad news for investors who love growth and tech stocks.
While many early-stage technology companies are reporting strong revenue growth, their value is based on the kind of profits they expect to report in the future. Higher bond-yields make future profits less valuable.
This helps explain why tech stocks have been having such a rough ride lately with the Nasdaq down 5.8% year-over-year and deep in correction territory (down 15.5% year-to-date). Value stocks tend to do better in high-interest-rate environments because they have more established operations and are already profitable.
How Is First Quarter Earnings Season Going?
Regardless, investors are hoping that earnings season will drive stocks higher. On the surface, the start of first quarter earnings season has been positive. While only seven percent of S&P 500 companies have reported results, 77% of those have reported a positive earnings per share (EPS) surprise and 80% of S&P 500 companies have reported a positive revenue surprise.
Despite the solid data, earnings haven’t provided the kind of boost investors have been expecting. The average one-day move after earnings for a company that beat its EPS guidance is just 0.4% over the broader S&P 500’s daily move. For companies that miss earnings, their stock prices have underperformed the S&P 500 by 2.9%.
Stocks aren’t moving very much because they are still viewed as being overvalued. Rising bond yields aren’t helping either. Moreover, ongoing headwinds, including inflation and rising interest rates, could lower sales and profits over the coming months and quarters.
Taken together, this means companies will need to generate even higher profits than expected to send their share prices meaningfully higher.
Learn-To-Trade.com, Canada’s Leader in Stock Market Trading Courses
Warning signs have emerged that suggest first quarter earnings season will not be as strong as expected with rising interest rates lowering economic growth. And those stocks that are reporting better than expected results are not seeing a big boost in their share price. For the trading professionals at Learn-To-Trade.com, it doesn’t matter what direction the markets are going.
Learn-To-Trade.com is Canada’s oldest and leading provider of stock market trading courses. Over the years, the trading professionals at Learn-To-Trade.com have taught thousands of investors, of every skill level, the technical and fundamental skills needed to become better, more informed traders.
And we mean every skill level. Our instructors are also educators for the Toronto Montreal Exchange, through which its instructors host educational sessions for major banks across Canada.
At Learn-To-Trade.com, we understand that investors have different needs. That’s why we provide a unique, Lifetime Membership that allows you to re-attend any part of the comprehensive program as often as you’d like.
To learn more about Learn-To-Trade.com’s stock market trading courses, contact us at 416-510-5560 or by e-mail at firstname.lastname@example.org.