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The last trading week of January is shaping up to be a volatile one.
Investors encountered a nasty sell-off on Monday, driven by Chinese startup company DeepSeek that rattled faith in US AI dominance. The downward plunge was almost fully recovered on Tuesday, with tech stocks bouncing back in a big way.
Although events outside of our control can dictate portfolio performance in the short-term, history has shown that investors who buy and hold the best companies over time tend to do very well.
But the truth is nothing is guaranteed. Stocks can experience drastic price moves – both positive and negative – in a very small window of time. Whether it be bull or bear markets, volatility is the one constant that we must be comfortable accepting and incorporating into our outlook.
There’s no doubt that certain pockets of the market have been due for a breather. Still, the latest bull rally has been based on strong fundamentals including increasing earnings estimates, which our research has shown to be the most powerful force impacting stock prices. Over the long run, stock performance tends to follow the path of corporate earnings.
How Will Markets React to the Fed Standing Pat?
Members of the Federal Open Market Committee (FOMC) will wrap up their two-day policy meeting on Wednesday. The group is widely expected to maintain their policy target rate at the current range of 4.25%-4.5%. Heading into today’s session, market participants were pricing in a roughly 98% probability that officials will hold steady.
Unless we get a surprise from the Fed with a drastically-altered dot plot, markets are more likely to focus on the upcoming earnings slate.
The Nasdaq Composite flexed its muscles yesterday, reclaiming a critical technical level ahead of an onslaught of key reports. With Big Tech quarterly results dominating the headlines this week, all eyes will be on guidance for future profits when it comes to AI-related ventures.
Four of the ‘Mag 7’ stocks – including Microsoft, Tesla, Facebook-parent Meta Platforms, and iPhone maker Apple – will release quarterly earnings figures in the coming days. Analysts are expecting the Mag 7 as a whole to deliver earnings growth of 20.9% relative to the year-ago period on 12.2% higher revenues.
Recurring Seasonal Trends
The stock market tends to display seasonal propensities, whereby certain periods tend to be more bullish relative to others. For example, the month of January falls smack dab in the middle of the most favorable six-month period of the year that runs from November through April.
The 4-year Presidential Cycle theory suggests that the stock market follows a predictable pattern that coincides with the course of a president’s term. Dating back to 1950, post-election years like 2025 tend to have muted returns.
But a deeper look at more recent cycles suggest that investors should pay closer attention to the first year under an incoming president. Post-election years have been surprisingly strong since 1985, returning 18.1% on average and advancing in 9 of the past 10 instances:
Image Source: Zacks Investment Research. Data via Carson Group.
Of course, historical patterns are not a sure thing. As investors, we want to maintain flexibility and remain unbiased in our approach.
Stocks to Watch as Q4 Earnings Season Ramps Up
The sell-off earlier in the week appeared to show some sector rotation, as market participants took profits in tech stocks and moved to areas that have just broken out such as health care. This is completely normal price action and is a healthy sign that this bull market can be sustained.
But even within tech, some companies managed to buck the trend on Monday. We want to look for stocks that hold up well through volatile periods and still experience some levels of buying pressure, as they will likely be the names that surge to new highs once the market regains its footing.
Cybersecurity stocks have been on fire lately. Shares of Cloudflare (NET - Free Report) are currently hitting 52-week highs after receiving an upgrade from analysts at Goldman Sachs last week.
Cloudflare is part of the Zacks Internet – Software industry group, which ranks in the top 18% out of all Zacks Ranked Industries. The company boasts a long track record of exceeding earnings estimates and is scheduled to deliver its quarterly results next week.
A Zacks Rank #2 (Buy), NET stock has outperformed the market over the past year with a nearly 75% return:
Image Source: StockCharts
Facebook-parent Meta Platforms (META - Free Report) was another stock that managed to close in positive territory on Monday. Offering the world’s largest social media platform, Meta is set to report fourth-quarter results this evening after the closing bell. Analysts expect the company to post a profit of $6.90 per share, reflecting growth of 29.5% versus the year-ago period.
Meta has surpassed earnings estimates in each of the past eight quarters. The stock is currently a Zacks Rank #3 (Hold). Shares are breaking out to all-time highs ahead of the announcement and have advanced more than 70% over the past year:
Image Source: StockCharts
What the Zacks Model Reveals
The Zacks Earnings ESP (Expected Surprise Prediction) seeks to find companies that have recently witnessed positive earnings estimate revision activity. This more recent information can be a better predictor for future earnings and can give investors a leg up during earnings season.
The technique has proven to be quite useful for finding positive earnings surprises. In fact, when combining a Zacks Rank #3 or better with a positive Earnings ESP, stocks produced a positive surprise 70% of the time according to our 10-year back test.
Meta Platforms is a Zacks Rank #3 (Hold) and boasts a +6.74% Earnings ESP. Another beat may be in the cards when the company reports Q4 results on Wednesday evening.
Final Thoughts
Historical and seasonal analysis are telling us to keep an open mind about better-than-expected outcomes in this post-election year.
Still, it’s never easy dealing with uncertainty. There’s always volatility along the way, even in the strongest bull markets.
Make sure to keep an eye on leading stocks as we head deeper into the fourth-quarter earnings season.
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Fed Set to Hold Rates Steady: Stocks to Watch
The last trading week of January is shaping up to be a volatile one.
Investors encountered a nasty sell-off on Monday, driven by Chinese startup company DeepSeek that rattled faith in US AI dominance. The downward plunge was almost fully recovered on Tuesday, with tech stocks bouncing back in a big way.
Although events outside of our control can dictate portfolio performance in the short-term, history has shown that investors who buy and hold the best companies over time tend to do very well.
But the truth is nothing is guaranteed. Stocks can experience drastic price moves – both positive and negative – in a very small window of time. Whether it be bull or bear markets, volatility is the one constant that we must be comfortable accepting and incorporating into our outlook.
There’s no doubt that certain pockets of the market have been due for a breather. Still, the latest bull rally has been based on strong fundamentals including increasing earnings estimates, which our research has shown to be the most powerful force impacting stock prices. Over the long run, stock performance tends to follow the path of corporate earnings.
How Will Markets React to the Fed Standing Pat?
Members of the Federal Open Market Committee (FOMC) will wrap up their two-day policy meeting on Wednesday. The group is widely expected to maintain their policy target rate at the current range of 4.25%-4.5%. Heading into today’s session, market participants were pricing in a roughly 98% probability that officials will hold steady.
Unless we get a surprise from the Fed with a drastically-altered dot plot, markets are more likely to focus on the upcoming earnings slate.
The Nasdaq Composite flexed its muscles yesterday, reclaiming a critical technical level ahead of an onslaught of key reports. With Big Tech quarterly results dominating the headlines this week, all eyes will be on guidance for future profits when it comes to AI-related ventures.
Four of the ‘Mag 7’ stocks – including Microsoft, Tesla, Facebook-parent Meta Platforms, and iPhone maker Apple – will release quarterly earnings figures in the coming days. Analysts are expecting the Mag 7 as a whole to deliver earnings growth of 20.9% relative to the year-ago period on 12.2% higher revenues.
Recurring Seasonal Trends
The stock market tends to display seasonal propensities, whereby certain periods tend to be more bullish relative to others. For example, the month of January falls smack dab in the middle of the most favorable six-month period of the year that runs from November through April.
The 4-year Presidential Cycle theory suggests that the stock market follows a predictable pattern that coincides with the course of a president’s term. Dating back to 1950, post-election years like 2025 tend to have muted returns.
But a deeper look at more recent cycles suggest that investors should pay closer attention to the first year under an incoming president. Post-election years have been surprisingly strong since 1985, returning 18.1% on average and advancing in 9 of the past 10 instances:
Image Source: Zacks Investment Research. Data via Carson Group.
Of course, historical patterns are not a sure thing. As investors, we want to maintain flexibility and remain unbiased in our approach.
Stocks to Watch as Q4 Earnings Season Ramps Up
The sell-off earlier in the week appeared to show some sector rotation, as market participants took profits in tech stocks and moved to areas that have just broken out such as health care. This is completely normal price action and is a healthy sign that this bull market can be sustained.
But even within tech, some companies managed to buck the trend on Monday. We want to look for stocks that hold up well through volatile periods and still experience some levels of buying pressure, as they will likely be the names that surge to new highs once the market regains its footing.
Cybersecurity stocks have been on fire lately. Shares of Cloudflare (NET - Free Report) are currently hitting 52-week highs after receiving an upgrade from analysts at Goldman Sachs last week.
Cloudflare is part of the Zacks Internet – Software industry group, which ranks in the top 18% out of all Zacks Ranked Industries. The company boasts a long track record of exceeding earnings estimates and is scheduled to deliver its quarterly results next week.
A Zacks Rank #2 (Buy), NET stock has outperformed the market over the past year with a nearly 75% return:
Image Source: StockCharts
Facebook-parent Meta Platforms (META - Free Report) was another stock that managed to close in positive territory on Monday. Offering the world’s largest social media platform, Meta is set to report fourth-quarter results this evening after the closing bell. Analysts expect the company to post a profit of $6.90 per share, reflecting growth of 29.5% versus the year-ago period.
Meta has surpassed earnings estimates in each of the past eight quarters. The stock is currently a Zacks Rank #3 (Hold). Shares are breaking out to all-time highs ahead of the announcement and have advanced more than 70% over the past year:
Image Source: StockCharts
What the Zacks Model Reveals
The Zacks Earnings ESP (Expected Surprise Prediction) seeks to find companies that have recently witnessed positive earnings estimate revision activity. This more recent information can be a better predictor for future earnings and can give investors a leg up during earnings season.
The technique has proven to be quite useful for finding positive earnings surprises. In fact, when combining a Zacks Rank #3 or better with a positive Earnings ESP, stocks produced a positive surprise 70% of the time according to our 10-year back test.
Meta Platforms is a Zacks Rank #3 (Hold) and boasts a +6.74% Earnings ESP. Another beat may be in the cards when the company reports Q4 results on Wednesday evening.
Final Thoughts
Historical and seasonal analysis are telling us to keep an open mind about better-than-expected outcomes in this post-election year.
Still, it’s never easy dealing with uncertainty. There’s always volatility along the way, even in the strongest bull markets.
Make sure to keep an eye on leading stocks as we head deeper into the fourth-quarter earnings season.