Earnings

History shows it pays to buy the market on the dip ahead of earnings

Key Points
  • Jefferies analysts say the S&P 500 has averaged a gain of nearly 2 percent during an earnings season since 2000 when the period follows a monthly decline.
  • The S&P 500 dropped 2.7 percent in March and added to those losses on Monday.
  • The U.S. earnings season kicks off on April 13 with J.P. Morgan Chase, Wells Fargo and Citigroup releasing quarterly results.
Pedestrians walk in snow past the Wall Street subway station near the New York Stock Exchange.
Michael Nagle | Bloomberg | Getty Images

Buying the dip in stocks ahead of the upcoming earnings season could bode well for investors, historical data from Jefferies show.

Analysts at the investment bank said in a note last week that the has averaged a gain of nearly 2 percent during an earnings season since 2000 when the period follows a monthly decline. The analysts also said the S&P 500 has averaged a gain of 0.9 percent during an earnings season.

The U.S. earnings season kicks off on April 13 with J.P. Morgan Chase, Wells Fargo and Citigroup releasing quarterly results.

The S&P 500 dropped 2.7 percent in March amid trade-war worries and concerns the tech sector could be hit with regulation. The index added to those losses Monday, dropping 2.2 percent as a decline in Amazon shares led tech stocks like Facebook and Netflix down.

Others on Wall Street also talked about the positive role of earnings season.

"Any alleviation of the forces mentioned above could help move valuations higher within our range while earnings results should help prices move higher," Mike Wilson, chief U.S. equity strategist at Morgan Stanley, said in a note Monday.

He also said he is a buyer of stocks heading into earnings season. "We think many of the risks have now been priced and see value in the S&P trading at 16.4x NTM EPS [next 12 months in earnings per share], the low end of our target near term range, ahead of what will likely be a strong 1Q earnings season," he said.

Jonathan Golub, chief U.S. equity strategist at Credit Suisse, said in a note Monday he expects S&P 500 earnings per share to get a 6.9 percent boost from lower corporate taxes. President Donald Trump signed a bill in December that slashed the corporate tax rate to 21 percent from 35 percent.

"Even without tax benefits, EPS growth should exceed 15%," Golub said.

Disclaimer