Be Prepared for Opportunities as Earnings Season Opens

 | Oct 09, 2017 | 10:00 AM EDT
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The big wait is over; no more guessing or hyperbole about third-quarter earnings. The hit parade gets started this week, and we'll have some big names reporting (banks end of week). The tone of the market will be extremely important, as will be the reaction.

It is usually in this particular reporting season that we get a glimpse of what companies foresee in the coming year. We saw a trickle of it over the past couple of weeks, from the likes of Micron Technology MU and a few others, but more information is always good.

The proof is always in the pudding.

What really interests me about this specific earnings season is how hurricanes Harvey and Irma affected businesses overall. We can certainly accept the fact these were disruptive in the short term, and given these disasters hit around mid-quarter, it is conceivable to think business slowed down a bit.

Since late 2016, the earnings trajectory has been higher, with that inflection point turning after a multi-quarter earnings recession that started a few years back. I expect a few more quarters of strong earnings growth regardless of policy, but if tax cuts/reform becomes a reality, we could see a bit more growth squeezed out in the year ahead.

Banks have been leading the market of late, as has technology, which mostly has been strong the entire year. The big-cap names like Action Alerts PLUS charity portfolio Apple (AAPL) , Amazon (AMZN) , Google (GOOGL) and others continue to garner investor interest, all with very healthy gains so for in 2017.

Banks and financials have also performed well, even with a flattish yield curve. Demand for loans, a strong investment landscape and improving economic fundamentals have helped to drive performance in some of the bigger names like JP Morgan (JPM) , Bank of America (BAC) , Citigroup (C) and Goldman Sachs (GS) .

With such strong market gains over the past couple of months, it may seem hard to fathom more upside, even as companies report strong earnings. After all, it would not shock us to see some names pull back a bit after reporting their numbers, a digestion of strong gains (called back n' fill). That is normal behavior, but in this market, those dip opportunities have been frequent and short-lived.

I heard Jim Cramer mention on Mad Money last Friday that it would not be a bad idea to take a little off the table, raise some cash and be ready for the next pullback, which could be a tremendous buying opportunity. He's not expecting a major pullback, but also realizes the markets have moved up sharply for a while, and this would be a good time to be prudent.

I agree with this line of thinking, but also believe as we forge through the last quarter of the year, the opportunities will be there. Just be prepared.

This week I will have Brian Gilmartin from Trinity Asset Management joining the webinar to talk about the upcoming earnings season. Don't miss this one, the link is here.

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