There is currently a lot of noise influencing the current volatile market conditions.
For instance, last week’s avalanche of economic statistics proved that inflation is still very much alive and well.
As previously mentioned, inflation has been falling for seven months in a row, but the rate of drop is slowing, which is discouraging.
It suggests that inflation may remain high for longer than we had hoped.
This provides the Federal Reserve with even more cause to keep raising key interest rates to combat inflation, as verified by the latest Federal Open Market Committee (FOMC) meeting minutes recently released.
According to CNBC:
At their most recent meeting, Federal Reserve officials stated that there are signs of inflation slowing, but not enough to justify further interest rate rises…
According to the minutes, inflation “remained significantly over” the Fed’s 2% target.
This coincided with “extremely tight labor markets, contributing to continued increasing pressures on salaries and prices.“
The minutes showed that the Federal Reserve expects to keep raising interest rates to combat inflation, with a 25 basis point increase predicted in March.
As we’ve discussed, I’m skeptical about a lot of the January economic data.
January is the busiest month for seasonal adjustments, and I expect significant changes to the January payroll and retail sales data in the coming months.
Nonetheless, the markets are still quite sensitive to any economic announcement at the moment.
Nevertheless, there is a more significant trigger that might influence stock prices in this volatile market.
Today, I’ll tell you what that catalyst is… and how you might profit from it.
Everything Comes Down to Money
Earnings continue to be a significant catalyst for the stock market…
Stocks that post outstanding quarterly results and forecast increasing earnings are rewarded.
Even companies that missed analysts’ earnings projections but delivered excellent performance saw their stock price skyrocket.
As an example, consider Quanta Services, Inc. (NASDAQ: PWR) from my stock hit list.
PWR rose more than 13% today to a new 52-week high, on to better-than-expected quarterly and annual results.
The company reported adjusted profits per share of $1.68 and revenue of $4.42 billion for the fourth quarter.
This surpassed analysts’ expectations of $1.60 per share on $4.28 billion in revenue for the fourth quarter.
Full-year adjusted earnings per share were $6.34 and revenue was $17.07 billion, both of which beat estimates for adjusted earnings per share of $6.32 and revenue of $16.93 billion.
Furthermore, corporate management stated that the fourth-quarter and full-year performance set new highs for the company.
Earnings are the key to success in a smaller market environment, as institutional and individual investors become more fundamentally focused.
The good news is that the fourth quarter should be the trough for the S&P 500’s earnings, despite the fact that the S&P 500 is still forecast to report negative earnings growth in the first two quarters of 2023.
As the earnings season comes to a conclusion, I expect the major indices to continue swinging.
But I don’t want you to be concerned in this volatile market.
It’s common for there to be some volatility following a quarterly earnings season, and companies that rose significantly post-earnings are likely to consolidate their gains in the coming weeks.
Invest in Businesses with Solid Fundamentals
You will win in the long run if you continue to invest in fundamentally sound companies.
Earnings have accounted for a large portion of the strength in my stock hitlist over the last seven weeks.
I believe my equities to be quite robust in the future months due to low price-to-earnings (P/E) ratios, good dividend growth, and strong sales and earnings growth.
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