If you are a fundamental investor, this is a week to pay attention. Almost a third of the S&P 500 companies are scheduled to report this week as we enter the exciting part of the third-quarter earnings season.
In fact, anybody that’s anybody seems to be reporting and we have already heard from the country’s largest financial institutions. If you missed it: things are good in the world of high finance (and when they aren’t, the government comes to the rescue anyway).
Among those reporting this week are some of the largest US companies by capitalization, including Facebook (today), Microsoft and Google-parent Alphabet on Tuesday, and Apple and Amazon on Thursday. But beyond the tech giants, we’ll also hear from AMD, GE, Lockheed Martin, GM, Visa, UPS … followed by Ford, GM, Caterpillar, Starbucks, etc.
It’s an almost perfect overview of the entire US (and, to an extent) global economy and, for any macro analysts, an invaluable read of the economy’s pulse.
Ok, what are we watching for? One word: guidance.
Expectations for this quarter had already been brought down and companies are – surprise, surprise – handily beating them. Demand is good. But costs could be a problem. And as inflation picks up steam (yes, Chairman Powell, we hear you: it’s temporary!) costs could become a problem that cuts into profits.
Chipotle last week deftly overcame that problem by introducing new items to the menu with higher prices, offsetting rising costs. Evidence of pricing power – ability to pass on higher input costs – is what could distinguish winners from losers this week.
Costs are definitely rising. The question is, who will pay them: companies (good for consumers) or consumers (good for your portfolio).
Asset in the spotlight (CSTL:NASD)
Castle Biosciences could be oversold. After the most recent price action, TOGGLE AI suggests the stock price may have gone too far to the downside. Historically, across 5 similar occasions with a sell-off of this magnitude, the stock price saw a median increase of 8% over the following month as it recovered. Due to a limited number of prior comparable episodes, this insight was only awarded 5 out of 8 stars but the price action – and history – is well worth noting.
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