The Great Earnings Season Reset

Originally tweeted May 11, 2024

Whether you're a day trader, macro, or fundamental, an incredible thing to ponder is the meaning of the charts below. It represents the period typically thought of as earnings season. 

For what it's worth, here's how I'm thinking about it: 

Day traders: Ton's of opportunity right now. Day traders are wonderful in that they do not have an opinion. These charts represent that those that had an opinion came in very opinionated couldn't possibly have been more wrong going in thus creating a pretty directional opportunity in single name, indices, and volatility. 

Macro: This represents that most came into Q far too bearish and the companies did not reflect that. Any bearish macro person who is not reflecting on what just happened is being a bit foolish. It's ok to be bearish but this chart represents a more neutral stance was the right call. Incidentally, post-Q1, there was plenty of evidence for a neutral stance if one simply reviewed the companies themselves.

Fundamental: This tells you this is your market (a stock picker's market). A market willing to trade an entire market down 10% on "earnings season" is a pretty weird place. Usually that would take some sort of real event. It also gives you a solid sense for the composition of the market. Macro and day trading are going to create opportunities and you need only hone your craft. 

Some of you might think, isn't it buyers and sellers that form the price? Yes, this is true. However, if you get a down ~10% move in an index without an event other than earnings season, it tells you that you had A LOT more of 1 versus the other. That means MOST players with size were bearish going in and likely found themselves underinvested. This supersedes other metrics. But then again, all that happened was a reset to pre-earnings season levels. It's not necessarily bullish. There's loads to unpack just in the fact this happened. 

Finally, the fact is QQQ shrank and returned much more than SPY and IWM. This is - admittedly - b/c you're seeing that vol was particularly acute in the top 20 companies. But as someone who reviews the entirety of the S&P 500, it would be misinformed to think that you didn't get this type of move in other single names outside of tech of the S&P 500. Also, with the IWM, even though YTD it's done a pretty hefty run, if you do the 1-yr chart you can see how it's done vs the SPY and QQQ. For small cap, recall, if you get investment banking opening up then you have about 2 years of pent-up M&A activity. Only the smallest trickle of deal volume happened 2022-2023. I'm already seeing it even in large cap and mega cap earnings this Q. And this is with limited shift in FED policy. The best evidence it's begun across cap sizes was GS's banking numbers.

Link to tweet: https://x.com/marketswithmay/status/1789271067707515363