Sideway Action Will Not Continue This Week

Analyzing the markets with Richie Naso, a Wall Street veteran of over 40 years and former member of the NYSE.

• DJIA 52-wk: +10.52% | YTD: +2.15% | Wkly: -0.53%
• S&P 500 52-wk: +13.35% | YTD: +1.02% | Wkly: -0.35%
• NASDAQ 52-wk: +17.78% | YTD: +1.12% | Wkly: -0.06%
• SPDR Gold Shares ETF 50-WK: +79.15% | YTD: +15.57% | Wkly: +8.71%

1. Geopolitical & Policy Headlines

• Markets were volatile early in the week on trade and tariff headlines, including the U.S. threat of new tariffs on European allies — which later eased and helped spark relief rallies midweek.
• Geopolitical tension and tariff news drove risk-off sentiment, contributing to swings in equities and strong demand for gold.

2. Earnings & Corporate News

• Intel’s stock plunged sharply (~-17%) after reporting weaker guidance despite a decent fourth-quarter result, pressuring the Dow and broader tech sentiment.
• Other corporate movers included mixed earnings reactions across sectors, with tech and semiconductors showing divergence in performance.

3. Tech & Mega-Cap Leadership

• Tech giant stocks (Microsoft, Nvidia, Meta, Amazon) provided support for the Nasdaq and helped insulate broader losses late in the week.
• Despite Intel’s headwinds, strong performance in other AI and tech names highlighted ongoing investor focus on growth areas.

4. Market Breadth & Sentiment

• Investor caution was evident — markets showed choppy, back-and-forth trading with little clear trend during the week.
• Safe-haven buying in gold and silver and nervous sentiment indicators underlined lingering uncertainty.

Sector & Asset Highlights

Tech Outperformance vs. Weak Earnings

• While Intel dragged on sentiment, other major technology names helped buoy the Nasdaq — a sign that tech remains a market focal point despite isolated earnings weakness.

Commodities & Safe Havens

• Gold climbed toward record levels, signaling risk aversion among investors.

Indexes Recent Trends

• The S&P 500 and Nasdaq remain modestly positive year-to-date, even after the weekly pullback.
• The Russell 2000’s small-cap shares remained relatively resilient compared with large caps.
  

MORE THAN 470 COMPANIES REPORT EARNINGS THIS WEEK, INCLUDING, MSFT, TSLA, AAPLE,TXN & IBM:

The Hidden Signals to look for.

The time has finally come! The Fed finally shifted its policy from monetary tightening, with rates on the rise and an eye on inflation, to easing, rate cuts, and accommodative policy. There's no question that's what equity markets want to see. Stocks love it when the money printer goes "Brrrrrrrrrr!"

That is the good news for equity markets. The bad news is that several headwinds are creating challenges. The biggest risk right now remains inflation. With tariffs in place, inflation has been rather sticky in some markets. Tariffs themselves remain a significant risk for the broad market. Just recently, threats of escalating tariffs with NATO partners have been put on the table. It's making for some nervous stomachs.

The good news is that eyes remain fixated on AI. The revolutionary technology is springboarding into practice. What used to be pie in the sky is now an everyday apparatus. How will AI improve margins in the tech space, and which companies stand poised to reap the fortunes of this mad dash for technological supremacy?

Amidst this backdrop, we've got earnings. Investors are going to be parsing reports word-for-word, as they do with Fed Policy Statements. Will the AI boom continue to fuel the bottom line of behemoths like NVIDIA? What are the prospects for companies like Nike and other consumer stocks that have slipped on tariffs? Will the Chinese use American aggression in Venezuela as an excuse to enter Taiwan?

With so much riding on this quarter's round of reports, one thing is evident: Nothing can move a stock faster, up or down, than an earnings announcement.

Nothing can move a stock faster, up or down, than an earnings announcement.

This is especially true today with the stock market hovering near all-time highs. There is a lot of room to fall. Over the last quarter, Basic Material stocks have been the surprise winners, adding nearly 19%. On the flip side, Utility stocks have lagged the broader market, shedding nearly 4% to the downside.

Any stocks unfortunate enough to hiccup this earnings season and not meet the lofty expectations of investors will be severely punished. This will lead to devastating losses for those unlucky shareholders. However, the owners of stocks with positive surprises will be richly rewarded. So now is the perfect time to align your portfolio to profit in the month ahead.

You should already know Zacks Investment Research specializes in the coverage of corporate earnings. And more importantly, how to profit from this information. So, today I'm going to share with you 3 proven secrets to profit from earnings announcements.

Secret 1: Target 4 Leading Indicators of Positive Earnings Surprises

The most obvious strategy is the reason we are all here. The 4 leading indicators I refer to are the 4 factors of the Zacks Rank. Before you skip this section, let me share some information with you that you may not have known.

In the mid-1970s, Len Zacks took his mathematical skills to Wall Street, where he worked to develop stock-picking strategies that would beat the market. He had a simple theory that would later become the Zacks Rank.

Len focused his research on identifying stocks, more likely to have a positive earnings surprise and to jump on the news. The journey led him to what we know as the 4 factors of the Zacks Rank. Each factor, individually, increases the odds of owning stocks that will deliver a positive earnings surprise.

However, when you combine them inside the Zacks Rank, it becomes an almost obscene advantage for investors.

Secret 2: Stop the Bleeding

This second secret is simple, yet hard for most investors to do. So, I'm going to repeat it again and again...until I wear out the words!

Consider Selling All Companies with a Negative Earnings Surprise!

This is something you need to give serious consideration to. Even after it falls at the open. Even if it is for a substantial loss. Why? You should weigh up whether it’s better to take a 5-10% loss in the short run than a 20 to 40% loss in the long run.

Keep in mind how earnings estimates are created. Both company executives and brokerage analysts do their best to create conservative estimates that the company should easily beat. It's all about lowering the bar. So, when a company falls short of those watered-down estimates, it points to one of two serious problems:

• Industry conditions have deteriorated, and thus, they missed their forecasts. This problem is most likely not going to correct itself in the near term, leading to further disappointment.

• Management is incompetent. Meaning they are clueless about estimating their own earnings. Or their growth strategies are simply ineffective.

Either reason is enough cause to abandon the stock immediately and move on to greener pastures.

Secret 3: Harness Real "Earnings Whispers"

Consider the following chain of logic:

• Wall Street analysts create earnings estimates.

• These analysts are highly motivated to create conservative estimates that can easily be beaten. Why? If they have a Buy rating on a stock, and the estimates are too high, then the stock is more likely to disappoint. This would send the stock price lower, and their stock ratings performance would be poor (leading to lower compensation for the analysts).

• The closer to earnings season we get, the more accurate the information the analyst has at their disposal to put into the estimate, since there is less time left to estimate performance.

Add it all up, and no analyst would increase estimates close to the date of the earnings report unless there were a DARN GOOD REASON. Focusing on those estimates closest to the earnings announcement is where we've found the "whisper that becomes a scream." ...a clear indication from the analyst community of stocks more likely to beat earnings by a wide margin. And most importantly, rise on that news.

Defense Stocks Ride High as Global Security Frays. 7 Names to Own.

Greenland, NATO, Venezuela, Iran —not a day goes by that global security doesn’t seem to be fraying. Yet geopolitical uncertainty, a hallmark of President Donald Trump’s second term, looks here to stay. It should be more fuel for defense stocks.

The sector, up 55% over the past year, is benefiting from a global armaments push. Global military spending exceeded $2.5 trillion in 2025. It’s expected to top $3 trillion by 2027, according to Global X ETFs, implying double-digit growth for the foreseeable future.

Increased military activity is positive for defense stocks. The U.S. becoming an “unreliable ally” is also good for the European defense sector, though that will take time to play out, says Rob Stallard, a veteran defense analyst at Vertical Research Partners in the United Kingdom.

In the U.S., two of his picks are submarine and tank maker General Dynamics and defense electronics leader L3Harris Technologies.

General Dynamics GD -0.70% benefits from the push for more boats, munitions, and cyberwarfare technologies.

L3Harris is spinning out its missile business as a separately traded public company, aiming to complete it by the end of the year. The U.S. Department of War plans to invest $1 billion in the spinoff. That capital, and the money raised in the initial public offering, will be used to expand capacity.

Jefferies analyst Sheila Kahyaoglu believes the deal could unlock combined gains of 30% in L3 and the spinoff stock, noting that missile businesses trade at higher multiples than diversified prime contractors.

In Europe, Stallard likes Italy’s helicopter maker Leonardo and Britain’s submarine and munitions maker BAE Systems BA +2.12% ; both benefit from higher European military spending, expected to grow at a double-digit rate.

The drone business is “red hot,” notes William Blair analyst Louie DiPalma, pointing out that backlogs are surging amid initiatives such as the U.S. Golden Dome. Two of Wall Street’s favorites are AeroVironment and Kratos Defense & Security Solutions.

AeroVironment AVAV -1.40% has surged 28% this year, to $312, and trades at 90 times estimated 2026 earnings. Wall Street still has a consensus Buy and price target of $384 on it. Kratos, up 50% this year to $114, has already exceeded Wall Street’s average forecast of $112. At 106 times estimated 2027 earnings, it’s now pricier than Nvidia and other artificial-intelligence stocks.

The rest of the sector is hardly cheap. Large diversified U.S. defense contractors trade for 24 times estimated earnings, up from an average of 16 times a year ago. Yet they’re expected to boost earnings 15% this year, faster than their 6% average annual growth in recent years.

Other risks: Defense companies falling behind on technology development and production could be forced to cut dividends and suspend share repurchases, per a new executive order from Trump. While that may be more of a negotiating position, the main message to contractors is to increase investment and prepare for growth, says RBC Capital analyst Ken Herbert.

One of Herbert’s top picks is Northrop Grumman; steady business execution and exposure to higher growth areas such as space and nuclear weapons should be tailwinds, he notes.

Owning defense stocks today assumes that geopolitical tensions stay elevated. Steep multiples and a breakout of global harmony are the risks. Assuming that doesn’t happen, the sector should be a winner.

It’s all about earnings. Approximately 481 companies report.

Sentiment & Technical Signals

Watch for shifts in:
✔ VIX (volatility index)
✔ Market breadth (adv/dec lines)
✔ Sector leadership shifts

Clues for next moves:

• Rising VIX + deteriorating breadth = risk-off
• Falling VIX with expanding leadership = bullish

What This All Means (in Practical Terms)

Bullish Scenario

✔ Earnings beats + strong guidance
✔ Tech support from leaders
✔ Stable or declining yields
✔ Broad market participation (not just narrow names)

Neutral / Cautious Scenario

✔ Mixed earnings
✔ Range-bound tech
✔ Yields unchanged
✔ Narrow leadership

Bearish Scenario

✔ Earnings misses/guidance cuts
✔ Yield spike
✔ Geopolitical risk escalation
✔ Weak small cap breadth

Earnings should drive market action this week. The recent sideways movement suggests the market is coiled, with the billion-dollar question being which direction it breaks. Investors continue to buy dips, and until that behavior changes, I’m not inclined to bet against the prevailing trend.

— Richie

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