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It’s earnings season yet again. And I think this one is going to be more down-to-earth than the ones we’ve had over the past year. Have cash available to grab some deals, writes Kelly Green, editor of Dividend Digest.

Earnings season is roughly a six-week period when companies announce their quarterly earnings. It typically begins two weeks after the quarter ends. So, each “season” kicks off in the middle of January, April, July, and October. During this time, huge amounts of financial data are dumped into the market. And most companies host earnings calls with prepared remarks from their management and Q&A segments.

Management’s tone on the call is just as important as the financial numbers. Joining the call or reading the transcript afterwards can give us different insights. I especially look for any signs of hesitation or comments that don’t line up with previous calls or press releases.

For the past few quarters, I have seen many examples of investors taking any positive piece of news and running with it. Negative news was routinely swept under the rug. As I said above, I expect a more logical reaction to earnings from investors. If I’m right, the Q2 reports will be worth watching.

Meanwhile, the market has recently priced in high odds that we’ll see a rate cut in September. I’ve talked before about how this will be an important turning point for the market. It will be the catalyst for the “correction” everyone says must happen.

I don’t think so. I think we will get a sector rotation and not a broad market correction. And that’s why it’s so important to be ready for what this earnings season throws our way.

Earlier this month, JPMorgan Chase & Co. (JPM), Citigroup Inc. (C), and Wells Fargo & Co. (WFC) all reported. The three big banks all saw their stocks tick down on the day. This happened despite them beating analyst expectations on various earnings numbers. Investors did not allow some good numbers to overshadow their concerns with other numbers — specifically, lower net interest income.

This period of “market rationality” before an expected interest rate cut will hand us a unique buying opportunity. Here’s what you need to do.

1. Consider taking gains on tech positions, or any stock that is trading at a high P/E. 

The price-to-earnings ratio (P/E) is a quick way to tell if a stock is trading at a reasonable valuation. The lower the number, the cheaper the stock valuation. The 10-year average P/E for the market is 23.8. This means investors are willing to pay 23.8 times annual earnings for shares.

If you have some big gains on stocks with a P/E above 30, you might want to think about taking some of them off the table. If you’re not convinced it’s time to sell, maybe sell half of a position to lock in some gains.

2. Have cash available to grab some deals. 

If we get a sector rotation, investors will start to recall the safety of utilities, consumer staples, and other boring dividend stocks. Any hint of bad news through this earnings season might be your last chance to buy at a good price — and secure a higher yield — before the anticipated rate cut in September.

Every earnings season is an opportunity to use data and investor sentiment to our advantage. The one we’re in now is going to be important, so make sure you’re paying attention.

About the Author

Kelly Green, senior editor at Mauldin Economics, has been a researcher for as long as she can remember. She was always fascinated with taking things apart and asking hundreds of questions—whether it was a car or a complex math equation. Ms. Green turned to a career researching the lucrative field of high-yielding equities.

She fell in love with exploring the ins and outs of income-investing opportunities and sell-side options trades. Over the next few years, Kelly would work as co-editor of several income-focused newsletters, chief researcher, and portfolio analyst. She also wrote an educational series for investors covering topics ranging from making first trades to how to trade options.

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