Personal Wealth Management / Expert Commentary

Corporate Earnings

Fisher Investments’ founder, Executive Chairman and Co-Chief Investment Officer Ken Fisher discusses how corporate earnings influence stocks and why investors should remain optimistic about the market. Ken begins by explaining how corporations’ management teams are incentivized to keep expectations low ahead of earnings announcements to avoid disappointing investors when earnings are released.

Ken says that while earnings are down so far this year, they have been better than feared. He thinks investors have significantly lowered expectations following fears of a potential recession and regional bank failures, among other headlines. According to Ken, these bricks in the “wall of worry” likely create a gap between expectations and reality, which should help stocks continue to rise.

Transcript

Ken Fisher: Corporate earnings, for a good long time, have this tendency to do better than expectations. Because what managements typically do, is try to talk down the expectations so that they can beat the expectations. This isn't something of the last three quarters or three years, this has been going on for a long, long time.

It's in management's best interest to talk down expectations so that when they actually have the earnings release later, they don't really disappoint the investors. But this period has been another one, as we're going into the beginnings and been through the beginnings of earnings season from the end of the second quarter of 2023, where there are some telltale indications that this is relatively important this time.

It's important because, you'll remember, that we had all the fears about recession that hasn't come. All the fears about housing, which never imploded the way people thought it might. And particularly this year in the first quarter all the fears about banking crisis, which because that was late in the quarter, wouldn't occur in earnings until the next quarter.

And in fact, this particularly was focused on those troubled banks that were thought potentially likely to be prone to failure. Not the big global banks like a JP Morgan, but the smaller and, excuse me, mid-sized banks that maybe could fail like a few were.

Now the reality is, this year's bank failures were actually a lot less important than people thought. And we've covered that in prior videos, and I've written about that in The New York Post, and covered it in other places. And you can see a lot of that on my Twitter feed if you want to go back through it.

But the fact is now in earnings season, those banks are coming in with pretty consistently, markedly better results than people expected. Which is another indication that because they didn't expect them to do so well, we're in this what I call skepticism phase of the market. It's a statement about sentiment.

Earnings are down, but they're not down as much as they were. And in the places where they were supposed to be worst, they're actually doing much better than people thought. It's not a great world. It's not a perfect world, but it's a better world than people thought. And that leads to stocks rising.

Thank you very much for listening to me.

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