Navigating the Market During Earnings Season
October gets us into the heart of football season where we can begin to see which teams are looking like the best ones this year. It is also an important month in the investment world because October is the beginning of the third quarter earnings season. Most publicly traded companies will report their third quarter earnings beginning in October and spanning the final quarter of the year. Earnings Reports Each earnings season companies report their earnings for the most recent quarter. Many analysts, advisors and others have expectations for what companies will be reporting. If a company’s earnings report shows earnings that are well outside the range of expectations, this could impact the stock price of the company in one of two ways: a positive way if reported earnings are above expectations, and a negative way if they are lower than expected. In some cases, an earnings miss by a major influential company can impact not only the price of that company’s shares, but those of that company’s industry or sector and in some cases the entire stock market. Some analysts and investors might take this as a sign of a bigger trend in the markets. The same holds true if a major, influential company reports earnings that exceed expectations. This earnings season has factors that could contribute to market volatility in addition to any company’s reported earnings being above or below expectations. There is the issue of Fed rate cuts into the future. The November election is coming up. There are fears of a potential recession. Sector Specific Issues Leading into this earnings season, earnings revisions prior to the start of this quarter’s earnings season have been largely negative. This decline has been larger than the revisions leading into the prior two quarters. These downward revisions have not been concentrated in any particular industry or sector. The technology and finance sectors have been largely immune from these downward revisions, while the transportation and energy sectors have been among the hardest hit by this trend. Energy companies’ earnings are under pressure due to declining energy prices. Transportation companies are feeling the effects of softening demand. Though the financial sector has not been hit by downward earnings revisions, earnings estimates for many large banks are for lower earnings than in previous quarters due to lower loan demand and pressure on interest rates.1 Opportunities and Risks This earnings season, like all quarterly earnings seasons, comes with its share of potential opportunities and risks. If an investor can identify a company whose stock seems undervalued and who is likely to report higher than expected earnings for the quarter, this might present an opportunity to realize some nice short-term gains if indeed the company does report higher than expected earnings. However, if this positive earnings surprise does not materialize, the stock price could stay the same or even decline a bit. Likewise, an investor might identify a stock where they expect the company to report lower earnings. If this is a stock they already own, they might sell the shares to avoid the expected downturn from lower reported earnings. If this does materialize, they might avoid a loss in value from a lower stock price. However, if these lower earnings do not materialize or if the company’s fortunes look promising, the stock price could rise instead depriving the investor of possible future gains. In general, investors who speculate in short-term increases or declines in a company’s earnings will often find themselves making a poor bet if they invest in a stock solely for this reason. Individual investors are generally better off taking a long-term view and investing in a company because they believe in the company’s long-term growth potential. In fact, investors are generally better off having a long-term investment strategy that includes an asset allocation for their overall portfolio. In the case of stocks, holding companies who are leaders in their industries and who have solid balance sheets and solid growth prospects is a good strategy for most investors. They might also use mutual funds and ETFs as appropriate to round out their asset allocation. Need help with your long-term investing strategy? Contact a Wedbush financial advisor to discuss the possible impact of third quarter earnings on your portfolio and how you can build a solid portfolio that aligns with your investment goals, risk tolerance and investing time horizon. 1: Nasdaq Disclosure Wedbush Securities does not provide tax or legal advice. Please consult your tax or legal advisor. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. The information in these materials may change at any time and without notice. Third-party entities, companies, and organizations that may be referenced on this page are not affiliated with Wedbush Securities or any of its affiliates. Opinions mentioned are that of the third-party and not of Wedbush Securities, the financial adviser and/registered representative, or any of our affiliates. Investment products involve investment risks including potential loss and are not insured by any federal agency, are not deposits or obligations of, or guaranteed by any financial institution and may involve loss of value. Past performance is not a guarantee of future returns. Any implementation of recommendations or investment strategies may generate fees, expenses, charges or commissions, based on the products and services. Any organization, company, individual, or third-party entity that are referenced on this page are not affiliated
Preparing for Open Enrollment Season
For many companies, fall is open enrollment season for their employee benefits for the coming year. This includes health insurance and other benefit options offered by employers. A benefits package is an important part of an employee’s compensation package. As you receive notices and updates from your company as a lead-in to the annual open enrollment, be sure to review this information carefully so you are prepared to make the best choices for you and your family this open enrollment season. Health Insurance Options October is the start of open enrollment season for many employer-sponsored health insurance plans. Even if your open enrollment season is a bit later, be sure to be prepared to review any changes to the health insurance options available for 2025 in light of your current coverage and any changing needs on your part. Are the plan coverage options similar to what has been offered in past years or have they changed? How has your situation changed? This might include changes to your health situation or perhaps your family coverage needs. This might also include new providers or prescriptions, or perhaps a child has aged off of your family coverage. You will want to review premiums, deductibles and coverages. Does it make sense to move to a high deductible plan in order to take advantage of an health savings account? Does it make sense to move from a high deductible plan back to regular coverage? Also be sure to review dental coverage for any significant changes. HSAs and FSAs This is a good time to assess your use of and need for medical savings accounts such as a Flexible Spending Account (FSA) or a Health Savings Account (HSA). Both types of accounts are funded with pre-tax contributions much in the same fashion as contributions to a traditional 401(k) or IRA. Both types of accounts allow for the use of funds from the account to cover qualified medical expenses with no tax consequences. With an FSA, all of the money in the account must be used to cover qualified medical expenses by the deadline (usually the end of the year or a period shortly thereafter) or that money is lost to you. With an HSA, this money can be carried over if not used in the current year. This makes an HSA an ideal retirement savings account as money left in the HSA can be used to cover medical expenses in retirement if desired. In addition, money in an HSA can sometimes be invested for an added return. In order to contribute to an HSA, you must have a high-deductible health insurance plan. These plans typically have higher deductible limits than a regular plan, but also generally have lower premiums.1 Annual HSA maximum contributions for 2024 are $4,150 for an individual and $8,300 for a family. Like a traditional IRA, these contributions are made on a pre-tax basis. Review Your Benefit Needs Open enrollment season is an ideal time to review your current benefits versus your needs for the upcoming year and beyond. This should be done on a comprehensive basis including: Your health insurance needs. Does a high deductible plan make sense along with an HSA? Are there family members aging out of coverage? Do you need more life insurance through the company plan due to a family change such as getting married or having another child, or instead do you just want to increase your coverage in general? Do you need less life insurance coverage? Could paying for added coverage through the company benefit be superfluous? Is the basic company disability policy adequate, or do you need to add more coverage via an addition to the basic benefit through the company plan or on the outside? If offered through the plan, is your dental coverage adequate, or do you need to add a higher level of coverage? Although this is typically not part of the open enrollment process, this is also a good time to review your participation in the company 401(k). Are you contributing as much as possible? Do you need to adjust your investment allocations including how your contributions are invested? For most employees, their company’s employee benefit plan is their main source of insurance coverage of various types. Employee benefits are a key part of your overall compensation from your employer, and you should take full advantage of these benefits and tailor them to your unique needs to the fullest extent possible. Contact your Wedbush financial advisor to discuss your employee benefits package during open enrollment season to resolve any questions you have. The team is ready to help you to ensure you are taking full advantage of this important benefit. 1: UHC Disclosure Wedbush Securities does not provide tax or legal advice. Please consult your tax or legal advisor. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. The information in these materials may change at any time and without notice. Third-party entities, companies, and organizations that may be referenced on this page are not affiliated with Wedbush Securities or any of its affiliates. Opinions mentioned are that of the third-party and not of Wedbush Securities, the financial adviser and/registered representative, or any of our affiliates. Investment products involve investment risks including potential loss and are not insured by any federal agency, are not deposits or obligations of, or guaranteed by any financial