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Market is about to see the strongest earnings season of year, history shows

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Lindsey Bell on earnings season: 'Set up looks good for stocks'

Earnings may give stocks a major boost starting this week.

Ally Invest's Lindsey Bell finds the third quarter is undeniably the most powerful earnings season for Wall Street.

"We're starting to think about the end of the year into next year, and you start to hear corporate management teams talk about that," the firm's chief investment strategist told CNBC's "Trading Nation" on Monday. "That gets investors revved up about what's yet to come."

Bell highlights the bullish trend in a special chart. It shows the S&P 500's average change by earnings season since 2000.

According to the data, the index is up 2.5% in the mid-October to late November time frame, which coincides with third-quarter earnings. Second-quarter and fourth-quarter earnings season both fall 0.3%, on average.

Bell anticipates the pattern will continue.

"This is the first quarter in four quarters that we're actually seeing earnings estimates move a little bit lower into the reporting period," said Bell, a CNBC contributor. "At the same time, we've also seen the market move lower going into the reporting period. We haven't seen that for a good four or five quarters. So, the set up looks good for stocks."

However, she has inflation on her watch list as a potential headwind.

"It's all going to come down to the commentary about margins and pricing power," Bell added. "The performance is going to be on a one-off basis. And, it's going to really favor companies that are high quality that can handle higher costs and are also able to pass through pricing power to the consumer."

'That reopening trade is coming back alive'

Based on her analysis, consumer discretionary should be a big winner over the next six months. She anticipates consumers will surprise retailers to the upside by doing holiday shopping earlier and spending more in reaction to supply chain bottlenecks.

Bell also favors industrials and materials.

"That reopening trade is coming back alive," Bell said. "They're two of the sectors where we have actually seen numbers come down a decent amount going into the reporting period."

JPMorgan Chase is scheduled to kick off earnings season Wednesday.

Disclaimer

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This trend suggests earnings season will give stocks a boost