Johnson: Earnings aren't as bad as many feared

Key Concepts

• Earnings season impact on market trends
• Tech sector leadership (AI and crypto related)
• Market breadth and new highs
• Year-end objective and future outlook
• Seasonal market weakness (August-September)
• "Buying the dips" strategy
• Money market fund levels and investor sentiment (FOMO)
• Attractive sectors: Technology, Industrials, Financials
• Specific stock recommendations: Bank of America, Oshkosh, Lennar, Horton, IBP

1. Earnings Season and Market Trends

• Craig Johnson believes earnings season is not as negative as many strategists predicted.
• Charts are forward-looking and have been guiding the market in the right direction.
• Earnings reports are supporting the price action observed in the charts.

2. Market Leadership and Broadening

• Tech sector, particularly AI and crypto-related areas, continues to lead the market.
• This leadership has persisted since the April lows.
• The consistency of leadership during market corrections indicates a strong secular bull market.
• Market breadth is expanding, with over 50% of stocks tracked by Piper Sandler in an uptrend.
• A key area to watch is whether more industry groups will achieve new highs.

3. Future Outlook and Year-End Objective

• Piper Sandler has a year-end objective of 6600 for the market.
• Johnson suggests potential upside beyond this target, looking towards 2026.

4. Seasonal Weakness and Investment Strategy

• August and September are typically seasonally weak months.
• Johnson recommends "buying the dips" rather than selling, anticipating investors will capitalize on pullbacks.
• High levels of assets in money market funds and investor FOMO (fear of missing out) will drive buying activity during dips.
• The market's reaction to the jobs numbers after a sell-off demonstrates this "buying the dips" behavior.

5. Sector and Stock Recommendations

• Most attractive sectors: Technology, Industrials, and Financials.
• Specific stock recommendations:
  • Bank of America
  • Oshkosh (OSTK)
  • Lennar
  • Horton
  • IBP (Installed Building Products)
• He notes that housing stocks are showing positive signs, which is a divergence from popular opinion.

6. Investor Sentiment and Cash Levels

• Elevated cash levels in money market funds suggest investors are ready to deploy capital.
• Investor sentiment is characterized by FOMO, driving them to buy during market pullbacks.

7. Technical Terms and Concepts

• Market Breadth: The extent to which a market's gains or losses are distributed among all stocks in the index. A broad market advance is considered more bullish than one where only a few stocks are rising.
• Secular Bull Market: A long-term market uptrend that lasts for several years, driven by fundamental economic factors.
• Uptrend: A series of higher highs and higher lows in a stock or market index, indicating a positive price trend.
• Money Market Funds: Mutual funds that invest in short-term, low-risk debt securities. They are often used as a safe place to park cash.
• FOMO (Fear of Missing Out): The anxiety that an investor feels when they see others making profits in the market and they are not participating.

8. Logical Connections

• The positive earnings reports support the price action seen in the charts, reinforcing the idea that the market is fundamentally sound.
• The continued leadership of the tech sector, combined with broadening market breadth, suggests a strong and sustainable bull market.
• High cash levels and FOMO among investors create a dynamic where market dips are quickly bought, preventing significant corrections.

9. Synthesis/Conclusion

Craig Johnson is optimistic about the market's prospects, driven by positive earnings reports, tech sector leadership, and broadening market breadth. He believes that any pullbacks in the seasonally weak months of August and September will be buying opportunities due to high cash levels and investor FOMO. He recommends focusing on the Technology, Industrials, and Financial sectors, as well as specific stocks like Bank of America, Oshkosh, Lennar, Horton, and IBP. He anticipates further upside potential beyond Piper Sandler's year-end target of 6600, looking towards 2026.