On September 30, after a diatribe on inflation, I left off by saying…

Amid the recent price decline in the market, one big looming event is coming up in mid-October – and that’s earnings season.

I believe the only reason the market isn’t much lower already is the strong showing from corporate earnings this summer, which spurred the summer rally.

But the market is forward-looking. And if earnings have peaked, which is highly probable, then this is just the beginning.

So far, my theory of peak earnings has proved correct.

Over the last two weeks, earnings from Tesla (TSLA), Microsoft (MSFT), Alphabet (GOOGL), and Meta Platforms (META) – which collectively make up 10% of the S&P 500 – have declined.

They are also falling short of analyst estimates – a reversal of what we saw in the summer.

Yesterday, META fell over 24% after its earnings release. GOOGL went down 12%. Even MSFT – the “knight in shining armor” of big tech – dropped almost 10%.

The Fed’s monetary tightening affects the economy with a lag. No one feels it at first, but over time, it starts to hit all at once. These earnings numbers are pointing to the possibility that that time is fast approaching.

That’s because when executives at these companies see earnings start to drop… the first thing they ask HR is, “How do we cut the workforce?”

So why isn’t the market getting completely decimated lately?

Falling Volatility

The fact that the market isn’t getting crushed lately is concerning for the bear case.

There’s always the risk that bad news has already been priced in… a mechanism of the market’s forward-looking nature.

But everyone says that… and has been saying it during every one of the bear market rallies we’ve seen this year.

I think there’s more going on behind the scenes.

Maybe the market is holding it together lately because it anticipates a broad-based Republican win come election day, which is thought of as good for the economy.

The chart from RealClearPolitics shows Republicans gaining a lot of wiggle room over the past few weeks… coinciding with a rising market.



But when looking at the market – to understand why it isn’t tanking right now – another important aspect to examine is the weightings of tech stocks within the S&P 500…

Earlier, I mentioned how these four stocks make up 10% of the S&P… That weighting was over 12% a year ago…

And if you look at other big tech brand names, their weighting in the index has fallen as well.

This means the most popular stock index – the one that is linked to an immeasurable number of products and strategies – now has a more balanced weighting as a result of tech’s downfall this year.

And that means there’s slightly less influence on the overall market when these stocks fall…

But what’s even more important is that volatility has been dropping pretty hard, despite the bad news.

Case in point was after META’s disaster of an earnings release… the tech-heavy Invesco QQQ Trust Series 1 (QQQ) gave up its entire 2% gain on the day within minutes.

But the VIX futures (the market’s “fear gauge”) rose only slightly.

In addition, the VIX curve has returned to a state of contango (when the futures price of an asset is higher than the current price) from backwardation (when the current price of an underlying asset is higher than prices trading in the futures market).

That’s a positive sign the market is no longer willing to overpay for instant protection and chooses to pay less further down the line.

So how is this related to the market not plummeting? A lower VIX allows institutions to stop selling…

Big money gets handcuffed when volatility is high. A VIX above 30 is a big red line for risk managers at these places.

And in general, when the VIX is on the rise, these institutions are forced to hold back. So a drop in volatility is a big technical factor that allows them to put money to work.

But at the same time… despite volatility falling lately, the market hasn’t been rising as a whole either.

Free Trading Resources

Have you checked out Larry’s free trading resources on his website? It contains a full trading glossary to help kickstart your trading career – at zero cost to you. Just click here to check it out.

Tech Exodus

We’re seeing a continued exodus away from tech and into other sectors, as evidenced by the continued deterioration of the spread between the QQQ and SPY… which we showed paid subscribers last Friday.

Here’s an update on that chart…


But at the end of the day (especially in a macro environment of fear), valuations cannot go back to where they were at the start of the year…

That’s when price-to-earnings (P/E) multiples were trading at the exact levels they were before the dot-com crash in 2001…

Fool me once, shame on you. Fool me twice, shame on me.

Fool me three times, and I should close my brokerage account.

And the way the P/E ratio works is really simple…

If earnings decline (the “E”) while prices stay the same, valuations would rise.

But that won’t happen. The “P” (prices) will fall if earnings decline.

So this is all just shaping up to be short-term noise.

At the end of the day, everything in the market comes down to earnings (or the hope of earnings growth in the future). That’s the end all be all.

And more and more, as earnings season continues, the theory that earnings have peaked is starting to become fact.


Eric Shamilov
Analyst, Trading With Larry Benedict

Reader Mailbag

In today’s mailbag, subscribers to One Ticker Trader thank Larry for his guidance…


I enjoy the association with your service. I followed your put instructions on October 25 but as soon as I reached my brokerage account, the bid & ask price was at $11.00. So, like you said I didn’t chase anything. Being new in a game (business), it pays to listen.

Michael Z.

Hi Larry,

I’ve just read my first of your reports, “Retirement and Options.” I’m French speaking from Quebec and the opening of an account seemed a bit fast for me though it’s well explained. But I’ll get through it.

Your detailed explanation of your investment strategy convinced me to go forward, but you seem an honest and competent person. You convinced me first when I watched your video report on CNN.

I’ve just retired and my investments, mostly tech, have been down all year. So, it’s time for me to do something. Thanks for now and hoping to do a lot of trading together.

Jean-Pierre B.

Thank you, as always, for your thoughtful comments. We look forward to reading them every day at [email protected].