Investing.com: Bank of America Predicts Stock Picker's Paradise in Upcoming Earnings Season
Bank of America's strategists are calling the upcoming earnings season “a stock picker’s paradise,” with earnings expected to play a significant role in market returns. In 2024, earnings have accounted for 45% of the S&P 500's 12-month returns, a shift from previous years where multiples were the driving force.
As the easing cycle begins, BofA believes that earnings will contribute even more to future returns. The options market is showing a higher level of post-earnings implied volatility for individual stocks this season, indicating that the real action will be at the single stock level rather than at the index level.
Despite the higher expected prices for individual stock options this quarter, actual market movements have exceeded implied moves in the past, leading to an increase in implied moves for the current quarter. If results continue to outperform market expectations, earnings straddles may expire in the money.
Strategists also point out that as long as inflation remains under control, strong economic data will support stocks. The upcoming Consumer Price Index (CPI) data is anticipated to drive a 109-basis-point move in the S&P 500 on Thursday, reflecting the largest CPI-driven market shift since May.
While the market may handle a modest inflation uptick well, a significant surprise could introduce more volatility and raise doubts about the ongoing easing cycle. It is important for investors to monitor the CPI data closely to gauge the market's reaction.
In conclusion, the upcoming earnings season presents an opportunity for skilled stock pickers to capitalize on individual stock movements. By staying informed about earnings reports and market data, investors can make more informed decisions about their portfolios and potentially maximize their returns.