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“Better” Is the Best Word on Wall Street

“Better” Is the Best Word on Wall Street

April 25, 2023

The stock market tends to be a leading indicator of where the economy is going. Stock prices of individual companies are theoretically priced based on projected current as well as future earnings reports, as well as current and projected economic data, like unemployment or actions by the Federal Reserve. So an important trend to follow is whether or not the data coming in, whether economic or company-specific, is "better" or "worse" than projections. 

From my perspective, we can't hear the word "better" enough in the weeks ahead.

"Better than expected."
"Better than feared."
"Better than forecasted."

These are winning phrases that can be used by market pundits when they compare a company's quarterly financials against Wall Street's forecasts. Additionally, terms like these can help investors feel hopeful about potential market behavior.

One way to measure "better" is the number of Standard & Poor's 500 companies that revise their earnings estimates prior to reporting earnings. As you can see in the accompanying chart, fewer companies have revised their estimates for Q12023. So in this instance, fewer revisions lower is better than the prior two quarters.

I’m a bit of an optimist when it comes to creating an investment strategy that fits your goals, time horizon, and risk tolerance. So I’ll be collecting all the betters I come across in the coming weeks. If you see a use of better that catches your attention, let me know about it. I’ll add it to my list!