Personal Wealth Management / Market Volatility

Ken Fisher Shares His Thoughts on an Underappreciated Positive: Corporate Earnings

Fisher Investments’ founder, Executive Chairman and Co-Chief Investment Officer Ken Fisher shares why he believes corporate earnings season generally is not a strong market driver. According to Ken, the stock market pre-prices all widely known information, such as the health of the economy alongside strengths and weaknesses within sectors and categories. While there are always exceptions, Ken says most companies’ earnings are consistent with their respective categories and consensus expectations.

Ken explains that the number of individual companies that surprise during earnings season—performing differently from their respective categories—is lower than most would expect. Though earnings season may seem important, Ken believes focusing on categories of stocks you expect to outperform moving forward tends to be a more effective investment strategy than focusing on individual companies’ earnings announcements.

Transcript

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Ken Fisher: So, I usually don't have many thoughts on earning season, but people often ask, what are your thoughts on earning season? The reason that I don't usually is because for the most part, overall, markets are pre-pricers and they tend to pre-price earnings season perfectly So, no, markets aren't perfect, but generally so yes. So, for example, markets tend to have a pretty good sense of prepricing, how the economy is doing, that's what they do for a living, what parts are stronger, what parts are weaker.

Ken Fisher: And so, the companies that fit into those categories neatly and have earnings consistent with that tend to have been priced before you ever get to earning season. There are individual instances, of course, where companies are individually above or below what was expected of them by a lot and there can be surprises there, but they're less than what people normally think them to be. And that's particularly true this year whereas the market has behaved in a more downward than upward mode, the companies in categories have been getting hammered that actually are consistent with the overall behavior of the market. But it's easy to get that confused with the actual earnings announcements of the company and how they behave.

Ken Fisher: I actually believe in this period that the amount of earnings announcement effect is much less than people think it is. The way humans are, we tend to want to focus over and over and over on the things we expect. So, we expect earnings should be terribly important as they're announced. Again, I revert to my point that mostly markets pre price most of it, and there's only individual companies doing markedly better or markedly worse that diverge markedly from the categories that they're in. Mostly they trade like the categories that they're in.

Ken Fisher: So, my point to you is that how their categories will do moving forward is going to be more important mostly than the individual stock variation. Thank you for listening to me.

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A Series of disclosures appears on screen: “Investing is Securities involves a risk of loss. Past performance is never a guarantee of future returns. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations. The foregoing constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice or a reflection of the performance of fisher investment or its clients. Nothing herein is intended to be a recommendation or a forecast of market conditions. Rather it is intended to illustrate a point. Current and future markets may differ significantly from those illustrated here. Not all past forecasts were, nor future forecasts may be, as accurate as those predicted herein.

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