Five Themes for Traders to Watch as Earnings Season Kicks Off

As the earnings season commences, investors are eagerly awaiting the performance reports of major corporations. The following five themes are crucial for traders to watch closely as they navigate the market's volatility and opportunities.

1. **AI Growth Deceleration among the Magnificent Seven**

The Magnificent Seven – Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla – have been driving the market's growth, with artificial intelligence (AI) being a significant growth driver. However, the rate of AI-driven growth is expected to slow down, which may impact their stock prices. Traders should monitor these companies' earnings reports and any guidance on their AI-related initiatives.


2. **Earnings Season Volatility: Opportunities for Investors**

Earnings season is expected to be volatile, with individual stocks potentially experiencing significant price movements. Traders can capitalize on this volatility by employing strategies such as options trading, which has seen an increase in implied volatility at the single-stock level. This earnings season could present a "stock picker's paradise" for those who can identify winning stocks.


3. **Non-Tech Sectors' Earnings Performance**

While tech stocks have been the primary drivers of market growth, non-tech sectors are expected to report their first quarterly earnings growth in at least six quarters. This broader rally could lead to a more diversified market trajectory. Traders should keep an eye on sectors like technology, communication services, and health care, which are expected to post profit expansions of more than 10%.


4. **European Markets: Turning Point or Stunted Recovery?**

In Europe, this earnings season could mark a turning point for the Stoxx 600 Index, which is hovering near record highs. Analysts have cut profit estimates, and regional economies are facing anemic growth. Traders should watch for any guidance on weakening consumer demand, which could spill over into stock prices. High-profile companies like Hennes & Mauritz and Volkswagen have already issued profit warnings.


5. **China's Earnings Recovery: A Long-Awaited Turnaround?**

A long-awaited earnings recovery in China has yet to materialize, and results are not expected to improve significantly in the second half of 2024. Hurdles include a housing sector downturn, demographic headwinds, and potential trade barriers. Traders should monitor the earnings trajectories of export-driven industries, such as home appliances and new electric-vehicle makers, for any signs of weakness.


In conclusion, the upcoming earnings season presents a mix of challenges and opportunities for traders. By closely monitoring these five themes, investors can make informed decisions and capitalize on the market's volatility.