{"id":116085,"date":"2017-11-07T09:41:37","date_gmt":"2017-11-07T14:41:37","guid":{"rendered":"http:\/\/countingpips.com\/?p=116085"},"modified":"2018-06-01T15:53:28","modified_gmt":"2018-06-01T15:53:28","slug":"judgment-day-for-stocks-third-quarter-earnings-report-card","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2017\/11\/judgment-day-for-stocks-third-quarter-earnings-report-card\/","title":{"rendered":"Judgment Day for Stocks: Third-Quarter Earnings Report Card"},"content":{"rendered":"
November 7, 2017<\/div>
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By WallStreetDaily.com<\/u><\/a> \"Judgment<\/p>\n

\"LouisIt\u2019s report card time.<\/p>\n

Roughly 1,100 companies have reported third-quarter earnings.<\/p>\n

The data, so far, suggest that the market has reached the upper limit on prices.<\/p>\n

Companies that miss analysts\u2019 expectations are down 3.3% in the two days following the earnings announcement. Such a two-day decline is over a full percentage point more than the historical norm.<\/p>\n

The reverse is happening, too.<\/p>

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That is, companies beating expectations are up 0.3% in the two days following the earnings announcement. The historic norm is a 1.2% rise in price for companies that \u201cbeat.\u201d<\/p>\n

It\u2019s definitely worth keeping an eye on.<\/p>\n

Today, though, we\u2019re handing out grades.<\/p>\n

Who made the honor roll?<\/p>\n

Who\u2019s being disruptive?<\/p>\n

And who just flunked out?<\/p>\n

Let\u2019s find out\u2026<\/p>\n

Honor Roll Goes To\u2026<\/h2>\n

\"JonathanMany people are asking\u2026 when will this ripping eight-year bull market come to a close?<\/p>\n

The answer is much simpler than you think: when earnings stop rising.<\/p>\n

Aside from central bank liquidity, no other force in finance has a bigger effect on a stock\u2019s price.<\/p>\n

But from what we\u2019ve seen so far, the earnings growth train isn\u2019t stopping \u2014 or even slowing down \u2014 anytime <\/em>soon.<\/p>\n

According to FactSet, 81% of firms in the S&P 500 have reported third-quarter results. And so far, 74% of companies have beaten estimates.<\/p>\n

Better still, 66% of S&P constituents have beaten sales estimates, too.<\/p>\n

Plus, with a major U.S. corporate tax rate cut on the horizon \u2014 which will ultimately boost bottom lines across the board \u2014 the sky\u2019s the limit for forward profits.<\/p>\n

So who made the honor roll this quarter?<\/p>\n

Drum roll, please\u2026<\/p>\n

The tech sector (with flying colors).<\/p>\n

FactSet notes that a whopping 90% of tech names have beaten earnings estimates \u2014 and the sector is currently boasting a 19% growth rate from the same period last year.<\/p>\n

The FAANG stocks (Facebook, Amazon, Apple, Netflix and Google) all soared after crushing their third-quarter reports.<\/p>\n

But the highest honors go to the semiconductor industry\u2026<\/p>\n

So far, semis sport an annual third-quarter earnings growth rate of 44% \u2014 the highest of any other tech industry, according to FactSet.<\/p>\n

Because their growth has been so strong all year, many of these names are selling off as investors take profits.<\/p>\n

If you haven\u2019t already loaded up on semi stocks, use the post-earnings dips to make your move.<\/p>\n

As I\u2019ve noted all year, I expect chipmakers to keep on rolling \u2014 well into 2018.<\/p>\n

The Worst of the Worst<\/h2>\n

\"MartinThere were a lot of pretty juicy flunkies this quarter. Perhaps this is a sign that the record-low volatility in the market isn\u2019t reflecting the real economy.<\/p>\n

Let\u2019s review some of the worst now\u2026<\/p>\n

The biggest blooper came from General Electric (NYSE: GE). Earnings came in at 29 cents per share when the market had been expecting 49 cents.<\/p>\n

This sent the stock into a tailspin. Shares sold off 20% as investors worried about the dividend.<\/p>\n

Like many big companies, GE has been buying back shares like a maniac in recent years. And with the stock below $20, down nearly 40% this year, that clearly wasn\u2019t a smart move.<\/p>\n

Another big loser was American International Group (NYSE: AIG). It lost $1.91 billion in the third quarter, far worse than forecast.<\/p>\n

Granted, the hurricanes during the last quarter hit insurance companies hard. Still, the losses were more than double Wall Street\u2019s expectations.<\/p>\n

Wayfair (NYSE: W) was a dud this quarter, too. The stock fell 16% on a loss of 65 cents per share.<\/p>\n

It\u2019s no surprise that losses were expected this quarter \u2014 considering the company always loses money and it\u2019s competing directly with Amazon (NASDAQ: AMZN).<\/p>\n

Yet somehow the stock is still up 65%. And shares will likely recover soon from this quarter\u2019s dip as the company\u2019s blind acolytes recover their faith.<\/p>\n

The award for worst flunkie of the quarter, however, goes to Tesla Inc. (NASDAQ: TSLA).<\/p>\n

The company lost $619 million in the quarter, which was more than expected. And it revealed that it was only able to produce 260 of its \u201cmass-market\u201d Model 3 vehicles. A problem in its battery Gigafactory was to blame, which took management a month to identify.<\/p>\n

Making matters worse for Tesla, President Trump\u2019s new tax plan includes the removal of a key electric car subsidy, according to the IRS.<\/p>\n

The stock is down $22 Friday, which created an early Christmas for bearish investors. But Tesla is still up 32% on the year.<\/p>\n

Talk about a tribute to the power of positive thinking!<\/p>\n

Disruption Is Key<\/h2>\n

\"LouisWith stocks raging higher for over eight years now, how can investors book the biggest gains at this late stage of the bull market?<\/p>\n

Simply invest in companies enjoying the most rapid sales and earnings growth.<\/p>\n

Such companies promise to rise the farthest (and longest) because there\u2019s obviously some disruptive force at work in their business model that\u2019s unlocking the unparalleled growth.<\/p>\n

Take Cognex (NASDAQ: CGNX), for example.<\/p>\n

The company is the world leader in the machine vision industry.<\/p>\n

Its systems help customers speed up production (higher efficiency), minimize defects (higher quality) and reduce costs (higher profitability).<\/p>\n

What\u2019s more, they\u2019re increasingly being used in a variety of end markets \u2014 including consumer electronics, automotive, consumer products, food and beverage, medical devices, pharmaceuticals, and logistics (package sorting and distribution).<\/p>\n

In short, Cognex represents the purest play on one of the fastest-growing tech sector trends: robotic automation.<\/p>\n

Consider the statistics:<\/p>\n