The Shockingly Tiny Earnings Number That Could Shift the Entire Market

JPMorgan Chase & Co. (NYSE: JPM) decisively moved the markets on Friday with its reported record Q1 revenue and earnings; CEO Jamie Dimon's positive economic outlook helped boost not only the stock, but the market in general.

And that's about as good as it got for the big banks... From there, it seemed like no amount of good news - and there was some good news - was enough to pull stocks out of the funk.

Wells Fargo & Co. (NYSE: WFC) also reported good earnings and a decent outlook, but its volume of loans and deposits were down more than analysts were expecting. WFC shares were up in the Friday pre-market - perhaps on JPMorgan's coattails... and promptly plummeted for the rest of the day.

In Monday pre-market moves, two more of the "Big Six" U.S. banks reported earnings, and it didn't go that well. Goldman Sachs Group Inc. (NYSE: GS) tumbled 3%; earnings beat estimates... but revenue dropped 13% year over year. Citigroup Inc. (NYSE: C) also reported strong earnings and reduced revenue, though it had much less of a drop than Goldman. Citigroup's stock "only" fell 0.5%.

On balance, a dreary, lackluster story... so far.

But that's not the whole story.

Because for all the gloom and reduced expectations - all that - there's a silver lining that I think will pull our hopes for a new leg up out of the fire...

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Remember: The Season Hasn't Really Started Yet

I'm sure we've all been shopping in the week or so after Halloween only to find Christmas decorations going up.

BOOM! Thirty-three stocks could explode on April 23, potentially creating monumental new wealth. Announcements can cause price explosions of 439%, 1,530%, and even 2,150% bigger than a normal "up" day in the markets. Learn how to get my earnings playbook here...

Well, earnings season is a lot like that. Some of the "Big Six" banks have reported, but traditionally, the "festivities" don't start until Alcoa Corp. (NYSE: AA), the large aluminum manufacturer, reports earnings - and that will be next Wednesday.

So it really won't be until the end of next week, April 26, that we'll have a good, actionable idea of earnings directions.

Now, analysts are projecting a drop in Q1 year-over-year (YoY) earnings at a clip of -4.2%. This would be the first quarterly drop in almost two years. Here's a chart from LPL Financial based on data from the well-regarded FactSet group:

Of course, corporate tax reform hit in Q1 2018, and so all four quarters of 2018 had the lower tax rates and accelerated depreciation advantages when compared to the same quarters of 2017.

That puts a thumb on the scales. It means that this earnings quarter will give us the first reports that compare post-tax reform quarters - Q1 of 2019 has no tax reform benefits vs. Q1 of 2018.

With an expected -4.2% drop in S&P 500 earnings, it's possible that even a very modest earnings improvement above this very low bar could be seen as a positive by the markets.

But that's not the most potent catalyst we could yet see unfold...

This Season Will Feature an Interesting Twist

Surprisingly, the same analysts expect overall earnings to increase 5% YoY!

That means analysts are expecting rising costs to outstrip rising revenue. This sets us up for a very interesting focal point for this earnings season: profit margins, a measurement of the amount of income divided by expenses, or how much of each dollar of sales turns into a profit.

If a company has better profit margins than expected, look for them to get a boost in stock price.

Put together enough companies with better-than-expected profit margins, and you've not only got a decent long play on your hands, but you've got a quarterly earnings season that could still have a positive impact on the stock indexes and propel this bull run even higher.

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