It’s earnings season… again. It always feels like we just finished reviewing the earnings from companies that report late, and we’re onto the next round. Although it’s easy to put more weight on fourth-quarter earnings—because we also get the full-year reports—each one is equally important.

Each quarter delivers something unique. So, we wait to see how management teams will react to the numbers.

We saw the S&P 500 hit 22 new record highs and climb 11% higher during the first quarter.

The S&P 500 might be an accepted “market gauge,” but don’t forget it measures 500 of the largest companies in the market. Sure, it’s a large basket. But it’s still a narrow measure of only certain stocks. In a basket of stocks, there are always stocks going up and stocks going down.

Today’s market optimism is being driven by a handful of stocks pulling the markets higher. Investors get excited… and they push the markets higher. The cycle continues as investors get even more emboldened. This reinforces the belief that the market will just continue to go up forever.

When you’ve been in the industry as long as I have, you know that’s not the case… it’s never a straight line up.

Focus on the Trees, Not the Forest

There’s no doubt investors have created a wonky market right now.

The Financial Times recently called the US markets a runaway train:

And CNN Business is pontificating that earnings season could actually revive some recently lost steam:

Now, I don’t think it’s going to be a bleak earnings season, but I think it’s going to be less than optimistic. Rates have yet to be cut, inflation is misbehaving, and it’s an election year. Rising gas prices and the unfortunate destruction of the Key Bridge in Baltimore are going to create transportation challenges for companies.

Just remember that the emotions of the investor hive mind determine how rational the markets will be.

I am generally perpetually bullish, especially on dividend stocks and the big, stable companies that I target. However, even I’m getting a little hesitant right now. I’m not saying that we should stop buying. But we need to stay very selective. And that’s where earnings season gets incredibly important.

Make sure you’re checking in on individual companies—both those in your portfolio and on your watchlist. This is the time to dig in on a stock-by-stock level and not get distracted by the forest of market noise around you.

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What We’re Looking For

For my Yield Shark readers, I compile and update a list of earnings call dates for our companies in my weekly updates. This is in case they want to go have a listen to the call themselves.

Most companies release their quarterly reports and host their earnings calls on the same day. A small number hold their call the following day. You can find this information under an “Investors” tab, or something similar, on a company’s website. Check the “press release” or “news” and “events” sections for details.

You can listen to the calls in real time or access a recording later. I personally like to read the earnings transcripts. The senior management teams take turns giving their prepared remarks. They will take analyst questions if time allows.

I think the prepared remarks and Q&A are equally important. I go through them and make sure the numbers make sense. I also take note of what management says… or sometimes doesn’t say.

Here are some of the things I’m looking for specifically this quarter:

• Full-year guidance revisions. This could be official or it could just be offhand comments here and there from management.

• Inconsistencies or backtracking from previous optimism. These can be harder to spot. Sometimes they will be in the prepared remarks, or in response to analyst questions.

• Investor reactions. If we’re still in an overly optimistic market we’ll see positive news create a little more upwards movement than it should. At the same time, optimistic investors will continue to sweep inconsistencies under the rug.

I highly suggest you take the time to at least check the quarterly earnings press release for the companies you hold. I will be reviewing all our active Yield Shark holdings and sharing my findings with my readers. I’ll also look at a few other companies along the way.

If you want to join the earnings calls conversation with me and the rest of the Dividend Digest community, we have a great designated space in the Mauldin Economics app. Just head over to the app store on your device to log in. If you want to access it through your web browser, simply click here.

And if you’re getting nervous about markets and global events, this year’s Strategic Investment Conference will help you navigate what lies ahead. We have gathered together a faculty of thought leaders and market experts that will share their ideas and outlooks over the 5-day virtual event. You can review the schedule of presenters and featured sessions here.

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For more income, now and in the future,

Kelly Green

• earnings season
• watch stocks not indexes
• what to watch for in first-quarter earnings

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