Doing the Potomac Two-Step Through Earnings Season

Inside the beltway that circles Washington D.C., politicians liken staying out of trouble as “doing the Potomac two-step.” It simply means dancing skillfully through a minefield of potential career-ending scenarios.

For stock investors, this past week has required the deft and grace of Fred Astaire to avoid the hidden trapdoors revealed by what is now being viewed as a highly volatile earnings season. Stock selection is at an ultra-premium following several blow ups by some high-profile market darlings.

Shares of Netflix (Nasdaq:NFLX), Facebook (Nasdaq:FB), Intel (Nasdaq:INTC) and Twitter (NYSE:TWTR) are the most glaring examples of how the market giveth over several months and taketh away in a single day. While there are big winners to crow about, the upwards spikes on good earnings pale in comparison to the gaps lower on negative surprises. As emotions go, when it comes to money, fear trumps greed by a factor of at least 2x and it is evident in how certain once-loved stocks are getting simply crushed.

First to the economy. Consumer spending propelled U.S. economic growth in the second quarter to a 4.1% pace, the fastest since 2014 to let President Donald Trump claim a win for his policies even though most analysts see the high as temporary. It followed first-quarter growth of 2.2% that was revised from 2%. Consumer spending grew 4%, more than estimated, while nonresidential business investment climbed at a 7.3% clip.
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