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Earnings Are Strong, but the Seasonal Trend Is Down – Here’s What to Do

As we deal with current market conditions, we’re left wondering if we should stay or cut our losses and forsake the market.

August can be a tough time. Volume is low, with all those movers and shakers in the Hamptons instead of on Wall Street. In fact, historically, this is one of the weakest-performing months of the year, particularly for the S&P 500:

  • August shows gains a measly 43% of the time, the worst rate of any month.
  • Average returns for August are -0.2%, placing it among the bottom three months.
  • And since 1987, August has the singular status as being the worst month for the index.


I could go on, but let me give you the “executive summary”: August is not a buy-and-hold month.

This is the right way to play it…

August Is a Real Stock-Picker’s Month

I’ve got to start by saying I feel cautious right now. And because the market has been so temperamental, there have been inconsistencies in the market’s reactions to earnings reports. So, for the most part (outside of Apple Inc.[Nasdaq: AAPL] and Tesla Inc. [Nasdaq: TSLA]), there have been muted responses to the current flow of earnings results.

Speaking of earnings, as of last Friday, 53% of S&P 500 companies had reported results, and here are the stats:

  • 83% beat their bottom-line earnings-per-share targets.
  • 77% beat their top-line revenue expectations.
  • And earnings growth is coming in at a robust 21%.

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So there’s been plenty of great news… but stock performance has been muted.

And that’s likely due to guidance, the important “second act” of earnings announcements.

Here’s What the Rest of Earnings Season Holds

Of the companies that issued guidance, only 14 reported positive outlooks. Conversely, 29 – more than twice as many companies – issued negative guidance. Neither traders nor corporations are looking forward to the next couple of months.

This gloomy forecast is likely one reason we’re seeing such a directionless S&P 500. But I don’t like to attribute trends to single metrics, which is why I’m watching other measures as well.

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First, the risk-on trade, as gauged by leadership of the small-cap Russell 2000, has finally started to waffle. The Russell had been decidedly bullish until the middle of July. And right now, I’m not seeing the kind of leadership I would like from the group, so I’m staying cautious.

Second, the S&P 500’s technical dance at critical support could trigger an instant sell-off should downward momentum pick up. Although the index has popped just enough over the past two days to get some breathing room above 2,800, the bottom line is that a break of this round-numbered chart support will likely cause a rush of selling pressure to take over.

earnings strong

And while any bounce in stocks is helpful, Apple’s two-day surge post earnings is responsible for a large part of it. One stock, even a trillion-dollar company like Apple, does not make for a sustained strong market.

With that said, when I think about the question “Should we stay, or should we go?” the answer is obvious to me…

We stay, for sure, but we’re going to be smart about it.

Over the next week, I’m going to send my Seismic Profits readers some choice recommendations to leverage what I think will be a definitive directional move. (You can click right here to learn how to get Seismic Profits Alert). Obviously, I can’t share everything we’re doing – it wouldn’t be fair to my paid subscribers – but I’ll be in touch this week with at least one “Best in Breed” recommendation for you.

I have some new positions on my radar right now. Some are calls to take advantage of their sector and individual strengths. Others are puts, to make some money on “Worst in Breed” sectors and the overall market weakness.

I hope you’re looking forward to it as much as I am.

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