Here’s the indicator that I’m watching and my strategy for staying in the market or deciding to step aside.
Looking at the aggregate forecast for earnings for the companies in the Standard & Poor’s 500, I think it’s reasonable to think that third quarter earnings–now being reported–will be stronger than Wall Street now expects and that companies will raise their earnings and revenue guidance for the fourth quarter of 2024. However, I expect that the actual fourth quarter earnings reports, while themselves positive, will strike a cautious note for 2025.
My sell/hold strategy follows from that. If companies are likely, in general, to beat this quarter and to raise guidance for the fourth quarter, then I want to stay on board up to fourth quarter earnings reports but to sell in January on that weaker guidance and Wall Street disappointment. (Feeding into this timing suggestion is the typical pattern of earnings from technology companies that historically show the fourth quarter to be the strongest of the year for many companies in the sector.)
All this seems reasonable and likely to me, but it is by no means guaranteed.
One indicator that I’m carefully monitoring is the guidance in third quarter earnings conference calls about the fourth quarter.
I’m checking to see if the cuts to guidance and that Wall Street disappointment might set in a quarter early. If that looks like the case, then I’d think about selling now instead of in January 2025.
Which is why the third quarter earnings report–and fourth quarter guidance–from Texas Instruments (TXN), the biggest maker of analog chips, is of such intense interest to me.
The company topped earnings estimates for the third quarter, but cut guidance for the fourth quarter.
In the third quarter, revenue fell 8.4% to $4.15 billion, marking the eighth consecutive contraction. Analysts had projected $4.12 billion. However, earnings were $1.47 a share, compared with analysts estimates of $1.37 a share.
Revenue in the fourth quarter will be $3.7 billion to $4 billion, the company said today, Tuesday, October 22. That’s significantly below analyst estimates $4.08 billion. Earnings will be $1.07 to $1.29 a share against estimates of $1.35 a share.
I don’t want to make too much of a single data point but I am starting to see a trend in the tech sector. Companies with strong AI business continue to raise guidance. Just look at Nvidia (NVDA) and Taiwan Semiconductor Manufacturing (TSM) last week. For other companies in the sector growth projections are trending downward.
CEO Haviv Ilan pointed to weakness in Texas Instruments’ industrial segment, its largest source of revenue. “Industrial continued to decline sequentially, while all other end markets grew,” he said in the statement.
Texas Instruments shares, up 14% this year, fell more than 1% in after-hours trading following the news.
