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Zacks Investment Ideas feature highlights: Amazon and Apple
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For Immediate Release
Chicago, IL – January 25, 2023 – Today, Zacks Investment Ideas feature highlights Amazon (AMZN - Free Report) and Apple (AAPL - Free Report) .
Timing the Market: EPS Is a Lagging Indicator
Timing Is Everything
In both life and markets, timing is a critical ingredient to success and often impacts the outcome of a situation. For example, you can meet the right partner at the wrong time in your life or interview for the right job at the wrong time in your career. Or imagine you invested in shares of Amazon at or near the peak of the dot com bubble in 2000. While ultimately, the company would become the dominant player in the eCommerce space and a massive winning stock, you would have likely been stopped out or suffered fatigue from holding shares.
The General Market Direction has the Greatest Impact on Stocks
Because most stocks tend to follow the direction of the major indices, one crucial factor that can significantly increase our chances of investing profitability is to be in sync with the direction of the major market indices. In other words, "so goes the S&P 500 Index, so goes your portfolio." Below is a chart of Appleversus the S&P 500.
Price Bottoms Precede Earnings Bottoms
But like individual stocks, the general market also requires timing. In the long run, markets are driven by earnings growth. However, historical precedent tells us that in bear markets, stocks tend to bottom long before earnings. In other words, a stock's price tends to trough long before earnings turnaround.
In the past two bear markets (COVID-19 correction of '20 & the Housing Crisis of '08), the S&P 500 bottomed roughly three quarters before earnings turned around and began to accelerate again! In the aftermath of the dot com bubble, price and EPS bottomed simultaneously. Said another way, at some point in the last legs of a bear market, the investors begin to discount the future and tend to look past weakening earnings data.
How to Time the Market
So, if we can't rely on real-time earnings data to lead us, what should we depend on?
· Zack's Consensus Estimates: While most of us do not have a crystal ball into earnings, Zack's processes information from roughly 3,000 analysts at over 150 different brokerage firms to provide consensus analysts estimates moving forward.
· Guidance: Though paying attention to the current quarter is important, most companies also provide investors with forward-looking statements and EPS guidance.
· Participation: Wide participation is a signal of a strong market. A new uptrend is more likely to work if several sectors are acting strong and leadership is broad. Market breadth (number of stocks up vs. down), new highs vs. lows, and number of stocks above their 50-day moving average are some tools traders can use to measure participation.
· Reaction to Earnings: Most investors would be hard-pressed to predict the price action of a stock following earnings if they were given the earnings ahead of time. More times than not, the reaction to a report and earnings season is more important than the report itself.
Summary
Ultimately, earnings dictate the direction of the market. However, stock market history suggests real-time EPS is a lagging indicator. Instead, investors should pay attention to consensus estimates, guidance, market participation, and earnings reactions.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
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Zacks Investment Ideas feature highlights: Amazon and Apple
For Immediate Release
Chicago, IL – January 25, 2023 – Today, Zacks Investment Ideas feature highlights Amazon (AMZN - Free Report) and Apple (AAPL - Free Report) .
Timing the Market: EPS Is a Lagging Indicator
Timing Is Everything
In both life and markets, timing is a critical ingredient to success and often impacts the outcome of a situation. For example, you can meet the right partner at the wrong time in your life or interview for the right job at the wrong time in your career. Or imagine you invested in shares of Amazon at or near the peak of the dot com bubble in 2000. While ultimately, the company would become the dominant player in the eCommerce space and a massive winning stock, you would have likely been stopped out or suffered fatigue from holding shares.
The General Market Direction has the Greatest Impact on Stocks
Because most stocks tend to follow the direction of the major indices, one crucial factor that can significantly increase our chances of investing profitability is to be in sync with the direction of the major market indices. In other words, "so goes the S&P 500 Index, so goes your portfolio." Below is a chart of Appleversus the S&P 500.
Price Bottoms Precede Earnings Bottoms
But like individual stocks, the general market also requires timing. In the long run, markets are driven by earnings growth. However, historical precedent tells us that in bear markets, stocks tend to bottom long before earnings. In other words, a stock's price tends to trough long before earnings turnaround.
In the past two bear markets (COVID-19 correction of '20 & the Housing Crisis of '08), the S&P 500 bottomed roughly three quarters before earnings turned around and began to accelerate again! In the aftermath of the dot com bubble, price and EPS bottomed simultaneously. Said another way, at some point in the last legs of a bear market, the investors begin to discount the future and tend to look past weakening earnings data.
How to Time the Market
So, if we can't rely on real-time earnings data to lead us, what should we depend on?
· Zack's Consensus Estimates: While most of us do not have a crystal ball into earnings, Zack's processes information from roughly 3,000 analysts at over 150 different brokerage firms to provide consensus analysts estimates moving forward.
· Guidance: Though paying attention to the current quarter is important, most companies also provide investors with forward-looking statements and EPS guidance.
· Participation: Wide participation is a signal of a strong market. A new uptrend is more likely to work if several sectors are acting strong and leadership is broad. Market breadth (number of stocks up vs. down), new highs vs. lows, and number of stocks above their 50-day moving average are some tools traders can use to measure participation.
· Reaction to Earnings: Most investors would be hard-pressed to predict the price action of a stock following earnings if they were given the earnings ahead of time. More times than not, the reaction to a report and earnings season is more important than the report itself.
Summary
Ultimately, earnings dictate the direction of the market. However, stock market history suggests real-time EPS is a lagging indicator. Instead, investors should pay attention to consensus estimates, guidance, market participation, and earnings reactions.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
See Stocks Free >>
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Zacks Investment Research
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.