These 3 Things Will ‘Make or Break’ the Market

Sep 25, 2021

We started to see indications in Q3 that things in the market had really changed. For the first time in what seems like ages… earnings reports really mattered — a lot.

To be honest, it was refreshing. Quarter after quarter, it’s been all about COVID-19, the Federal Reserve, and government stimulus programs.

But now the spotlight is on company earnings — exactly what the consumer data from LikeFolio is designed to predict best.

Even China’s Evergrande fiasco is turning out to be a blip on Wall Street’s radar so far.

As we head into Q4, I’ve spotted three critical factors that will make or break each stock — and perhaps the entire market — during the upcoming earnings season.

No. 1: Is “Reopening” Real?

Restrictions have eased almost everywhere, but worries about a seasonal COVID-19 surge are lingering, especially in urban areas.

Quite frankly, I don’t think the market is prepared for what could be coming.

For many companies, the holiday shopping season in Q4 is the primary driver of profitability for the entire year.

If consumer spending doesn’t live up to expectations, it could be devastating for some high-performing stocks.

Last quarter we saw some companies with bearish LikeFolio Earnings Scores fall 10% or more… overnight.

No. 2: “Outlook” is King

During most quarterly earnings conference calls, executives discuss with analysts their “outlook” for the company — how they think it will perform in the near and long-term future.

In Q4, everything is magnified exponentially.

That’s when CEOs are really put on the spot to predict how the entire next year will go. And the market responds accordingly, adjusting earnings predictions, price targets, and acceptable profit/revenue multiples.

In other words, in the next three months we’re going to hear from just about every public company as they tell us what they are seeing, what they’re worried about, and what they’re excited about for 2022.

Luckily, LikeFolio’s consumer insights data doesn’t rely on the predictions of executives.

We see what consumers are talking about in real time — including what they’re buying, what they’re not buying, and how they are planning to spend their money in the future.

That’s why CEOs themselves rely on our data to help inform their corporate outlook.

It’s a critical advantage, and it’s one of the reasons our Earnings System trade on Opendoor Technologies (OPEN) was able to book 287% profits in just five days last quarter.

No. 3: Understanding the Comps

Last quarter, Zoom Video Communications (ZM) reported revenues that were in line with analyst expectations, and a higher-than-expected profit forecast for the full year.

But the stock tanked by more than 10% overnight.

Why? Because the company’s rate of growth was slowing down compared to previous levels.

This caught Wall Street off guard.

But not LikeFolio members.

You see, LikeFolio’s Earnings Scores are built with consumer demand growth rate and prior-year comps in mind.

In fact, prior to the devastating move in ZM stock last month, our system gave Zoom a -74 Earnings Score, almost as bearish as it gets.

Landon put together an incredible trade using a simple options technique and booked a 355% profit in just five days. All while Wall Street shook its head at the losses the stock had taken.

There’s really nothing as exhilarating as profiting big from an overnight move in a stock.

And if what we saw in Q3 is any indication (it is!), we are in for many more huge moves in the upcoming months.

Andy Swan,
Founder, LikeFolio