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Critical Earnings Season Ahead

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Heading in to a Critical Earnings Season for the Markets

Back in early December of last year, Wall Street consensus expectations for year-over-year S&P 500 Q1 earnings growth was roughly +6%. By the middle of February, the consensus had been driven all the way down to -1% year-over-year EPS growth for Q1. That is a striking and important reduction over such a short time period. If the current consensus is correct, earnings will contract year-over-year for the first time in several years.

What actually happens will likely set the tone for the markets for the rest of the year. If earnings are weak and they are driven by revenue pressure, the bears will say that a recession is coming. If earnings surprise to the upside and growth is better than expected, the bulls will say that all of the hand wringing was for naught.

That is the set-up for what will be one of the closest watched earnings seasons in quite a while. At Alpha DNA, we’ll be watching as close as ever. As we do every quarter, we will send out this season’s first earnings assessment update next week.

March sees pressure on Mid and Small Caps in market and in IAS portfolios
Our performance in March was not up to our expectations as the mid-cap and small cap categories led the way down in BOTH the markets and in our portfolio. The S&P Mid-Cap 400 index was down as was the Russell 2000 and our IAS stocks in those indices were also down. Meanwhile, the major large cap indices (S&P 500 and the Nasdaq 100) were both up in March. However, if you remove the mega-large cap names from those market cap weighted indexes, both of those indices were basically flat for the month.  In fact, the average return for US large cap stocks in March was around flat.

Our equal weight portfolio of long stocks (used in the Equity Long-Short and Best Equity Picks strategies) finished down roughly -0.5% for the month and our shorts in the Long-Short strategies were in options on the Nasdaq 100 so those hedges also had negative returns for the month. The best performer for our lists was the newest strategy we announced earlier in the month – the IAS Concentrated US Equity Long-Short strategy. Since it held all S&P 500 stocks, it was only slightly negative – by basically the cost of the hedge.

So far in April through Monday’s close, the long stock portfolios in all of our strategies are positive and all strategies are either break-even or positive. Earnings season is around the corner and it will have a material impact on our portfolios.


Wayne Ferbert


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