Earnings Season Time: Watch Out for Bargains

1. AI's Market Influence: AI reshapes stock valuations by predicting trends with data analysis, affecting how markets react during earnings season.

2. Fundamentals vs. Prices: There’s a significant gap between the S&P 500's high prices and economic indicators, showing potential overvaluation in some sectors.

3. AI-Driven Expectations: AI influences earnings expectations, potentially stabilizing or causing volatility in the market based on the accuracy of these predictions.

4. Earnings Surprises: Surprises during earnings season can lead to sharp increases or decreases in stock prices depending on performance versus AI expectations.

5. Investment Opportunities: Watch for buying opportunities in specific tech and AI companies if their earnings reports lead to temporary stock undervaluations.

Introduction

Welcome to our clear look at the upcoming July earnings season. This is an important time when companies share how they've done over the past few months, showing us the health of the stock market. Right now, the S&P 500 is at its highest ever, even though some people worry the stocks are priced too high. This makes us wonder, is the market really as strong as it seems, or are we in a bubble? We'll dive into how this earnings season might prove, exceed, or challenge the high hopes set by Artificial Intelligence (AI) and give you useful tips to navigate these tricky financial waters.

The Role of AI in Market Valuations

The hype around Artificial Intelligence is really shaking up how people see the stock market, often making stock prices shoot up faster than the actual earnings of companies. This excitement makes investors eager, pushing prices higher as everyone tries to guess how much AI will change things. This kind of guessing game can make stock prices drift away from the usual signs of a company's health like profits or how much it sells. In areas like technology and finance, where hopes for AI are really high, this effect is very strong. It leads to big swings in stock prices that reflect what investors feel more than how solid the company is, especially when companies share their earnings.

Fundamentals vs. Market Performance

There's a growing gap between the high prices of S&P 500 stocks and the basic economic signs that usually help us judge if a stock is a good buy. This earnings season, we're going to look closely at whether these high stock prices really match up with how well the companies are doing. This difference is especially clear in sectors like real estate and consumer goods, which react more to economic changes compared to the strong tech sector. It's important for investors to understand this gap to decide whether to stick with old ways of picking stocks or adapt to the new market trends influenced by AI and tech.

Earnings Season Expectations

As the earnings season gets closer, there's a lot of talk about what we might see in terms of company growth, sales, and profits. Overall, people are hopeful but cautious, expecting steady growth. AI is playing a big part in setting these expectations by analyzing large sets of data to predict future trends. This could mean that forecasts are getting closer to what will actually happen, which might make the market react more evenly. However, if the real results are very different from what AI predicted, we could see big swings in the market.

Potential Surprises and Their Implications

One of the exciting parts of earnings season is that anything can happen. Let's think about two possibilities: first, if companies do much better than what AI predicted. This could quickly raise their stock prices, make investors happy, and possibly affect other companies in the same sector. On the other hand, if companies don't meet the high expectations set by AI, it could lead to big drops in their stock prices, which might affect the whole market. Understanding these possibilities is key because they directly affect how people make investment choices.

Specific Companies to Watch

Each earnings season, we pay special attention to certain companies that might be in a tricky spot or have a chance to surprise us. This season, watch out for big tech companies and new AI businesses that are under a lot of pressure to keep impressing everyone. If their earnings reports show any weakness, their stock prices might drop, which could be a good chance for smart investors to buy. These companies usually have strong basics and are well-placed in the market, making them good investments if their prices drop temporarily. Keeping an eye on these companies could be very rewarding if you're looking for good deals on strong stocks.

Conclusion

As we wrap up our look at the July earnings season, keep in mind that our insights are here to help you steer through a market that's more and more driven by Artificial Intelligence and complex evaluations. We've talked about AI's role, the mismatch between market performance and basics, and pointed out specific companies to keep an eye on. Whether you're rethinking your investment approach or searching for new chances, this earnings season is a crucial time to test market strength and your own investment wisdom. If you have any questions or want more details about anything we've discussed, please leave a comment or reply to this email. We value your thoughts and questions highly and are here to help you make the best decisions in these lively market times.

Happy investing!
Josh

P.S. I want to give a special shoutout to the newsletters I currently enjoy reading:

• Capitalist Letters

• Make Money, Make Time

• Quality Stocks

• The Weekend Investor

The information is provided for educational purposes only and does not constitute financial advice or recommendation and should not be considered as such. Do your own research.