When you assess an earnings report, you have to compare it with the company’s long-term road map. Did Apple, for example, grow service revenue, something the tech giant has been working on for years? Are long-term sales goals being met even if they’re not happening in exactly the way the company thought they might?
For example, when Apple introduces the new iPhone, in September, sales may be front-loaded or people may wait a few weeks, until the holiday season, before they buy. In a broader sense, many customers may wait until their current phone gets paid off. It’s a 12-month cycle where the destination, not how you get there, matters.
So Much Noise, So Little News It’s a 24-hour/7-day-a-week news cycle, and media outlets tied to that wheel can’t tell you that what’s happening in the moment is one data point of many, not a meaningful, actionable item on its own.
Higher interest rates, for example, mean higher mortgage rates, which in turn could slow the housing market and bring prices down (or at least slow their growth).
That’s not a simple equation. Cheaper sale prices with higher mortgage rates might increase affordability for buyers but they also slow wealth creation for sellers.
Both are interesting data points when you look at lots of different stocks, but evaluating a company’s prospects is much more about how its management executes a plan while adjusting for economic conditions.
Peloton (PTON i Netflix (NFLX , for example, have taken very different approaches to the end of the pandemic-driven boom.
Netflix always talked about how it was pulling growth forward, warning that at some point there would be quarters with slight drops. The company explained how it would get more efficient with its content spending and focus on new areas like video games to drive growth.
You can believe that strategy will work — I’m bullish on more focused content spending and I think games are lighting money on fire. But how the company executes on its clearly explained strategy means a lot more to its future than an interest rate move or whether Disney (DIS has an Avengers movie in theaters at this exact moment.
Peloton, for its part, has never really articulated a plan for a return to growth after the pandemic pushed forward its customer acquisition. Yes, the broader economy matters more to Peloton than it does to Netflix, but you should buy, sell, or ignore the company’s stock based on whether you believe in its long-term business plan, not because the cost of financing a bike just got marginally more expensive.
The media want to keep things simple. That’s why the weatherperson tells you it’s going to snow, how much may fall, and what the temperature will be, not the underlying science that leads to those things happening.
It’s easy to conflate single data points to stock market moves because when we get data, the market moves, but those moves don’t actually speak to long-term performance.
When you consider investing in a company or selling a stock you own, look at as many data points as you can, and don’t make blanket assumptions that higher interest rates or a weaker economy are bad (or good) for that company.
Remember that charts, numbers, expert opinions, and everything else are tools to help you understand the bigger picture. No one of them is the last word (and that’s why TheStreet has built tools like TheStreet Smarts, Action Alerts Plus, and Real Money to help investors understand not just singular data points, but how it all fits together).