Earnings season is poking its head around the corner for 2024 as markets ( ^DJI , ^IXIC , ^GSPC ) spring into the second quarter. Interactive Brokers Chief Strategist Steve Sosnick sits down with Market Domination to outline what could drive stocks as companies report their latest round of earnings results.
"My concern going forward is that... are we able to beat the raised bar that we've set for ourselves?" Sosnick tells Yahoo Finance. "Some companies have been able to do it. You look at a Nvidia, which is remarkably good at beating and raising, and then beating again. Most companies can't do that."
Sosnick also weighs in on oil prices ( CL=F , BZ=F ) and their influence on energy markets and the Federal Reserve's perspective on inflation.
For more expert insight and the latest market action, click here to watch this full episode of Market Domination.
Editor's note: This article was written by Luke Carberry Mogan .
Video Transcript
JOSH LIPTON: And Steve, another potential catalyst earnings season. We're creeping up on it a couple of weeks out. What are your expectations there?
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STEVE SOSNICK: Well, this is really the thing. Last quarter, I think, we were sort surprised at how well the market did. Because we came in with high expectations, and for the most part exceeded them and got good guidance. We've ratcheted it up a little bit more over the past three months.
And so I think coming in, my fear right now when you come into earnings season as a high-- near a high, which we're awfully close to, there's a lot of good news priced in. So my concern going forward is that, are we able to beat the raised bar that we've set for ourselves? Because some companies have been able to do it.
I mean, you look at an NVIDIA, which is remarkably good at beating, and raising, and then beating again. Most companies can't do that. And I do think there's a certain amount of that is priced in particularly in the more high-flying stocks.
JULIE HYMAN: I want to circle back around to oil prices also and just talk a little bit more about how much of a concern that is for you and for the Street.
STEVE SOSNICK: One of the first lessons I was taught, and this kind of shows my age a little bit, was always be nervous when you see oil stocks lead the rally Because that's never really a good sign. Because that means oil prices are going up and that means inflation. That means inflation is out there lurking.
I wrote a piece today, ibkrcampus.com, about how I started to-- how it looks as though we might be seeing a double bottom forming in the price of crude and how XLE, among other measures of energy stocks, has been a terrific performer. And in the last three weeks or so, energy has been outperforming SPX. That's not like this big waving red flag, but it's something to be concerned about because Powell keeps harping on inflationary expectations. Inflation expectations are very closely tied to the price at the pump.
The Michigan one-year employment statistic for expectations is basically like a one-month lag of gas prices, one to two-month lag of gas prices. So we haven't really seen the prices accelerate at the pump too much, that's why those have been relatively quiet. But if energy prices stay high, the Fed, on one hand, they want to ignore-- on the PCE they want the core deflator, which excludes volatile food and energy. Except that inflationary expectations among individuals are very heavily tied to the prices of food and energy because those are the things they spend the most on a regular basis. So it's a tough conundrum.
JULIE HYMAN: Yeah.
JOSH LIPTON: Seasonality too, top of mind, Steve. Sell in May and go away. You think that applies this year?
STEVE SOSNICK: I think it's a risk. You know, seasonality is never a perfect-- never perfect, although I will say the rally literally started on November 1. So that's definitely a consideration.
This year also, it does start to coincide actually with tax season to a certain extent. A lot of people have a lot of gains over the last year. Will people need to sell stocks to be able to pay the taxes on some of the gains they've made or have they been holding back? We'll find that out.
That's a lot of-- that's a lot of where the seasonality comes from. So you throw in April 15 along with earnings season, along with a calendar that's held very tightly to the seasonal-- to the seasonal biases. It's something that, I think, you have to be, if not heading for the hills, you have to think a little more defensively than you've been thinking over the last few months, where it's behooved everybody to play from the-- play offense and play offense heavily.