Earnings season is underway, and two companies just demonstrated one of the most important lessons investors can learn.

Taiwan Semiconductor beat Wall Street expectations, but its stock fell roughly 2%.

Pepsi also beat expectations, lowered its outlook, and discussed layoffs—yet its stock rose approximately 2%.

Why would investors react so differently to two positive earnings reports?

In today's episode of The Daily Read, Jeff Kikel explains why stock prices are driven by expectations rather than headlines.

You'll learn why companies priced for perfection can fall even after strong results, why beaten-down stocks sometimes rally on modest improvements, and why management guidance often matters more than last quarter's performance.

Jeff also shares his personal three-day rule for avoiding earnings-related volatility and looks ahead to Delta and major bank earnings.

The takeaway: During earnings season, don't just watch whether a company beats expectations. Watch how the market reacts.

Exit Rich…Retire Free — The Daily Read

Hosted by Jeff Kikel

Educational content only. Not investment advice.

Good morning, folks.

Welcome to another episode of The Daily Read here on Exit Rich,

Retire Free with Jeff Kikel.

And today is Thursday, October 8th.

And of course, we start the day off again with something similar, but

the beginning of earnings season.

So we'll start to see earnings season kickoff here starting today actually.

And we'll be going for literally the next three months.

Seems like we just keep seeing earnings season happen, and we keep going.

Today kicked off with Taiwan Semiconductor, the company

that manufactures the chips behind the entire AI boom.

They are the manufacturer.

You hear, some of the companies like NVIDIA and Micron and things

like that, those are the front end of the basically the designers.

But Taiwan Semi's the ones that actually put the chips together,

and they are a massive cash beast.

Now, they handily beat Wall Street estimates, and of course, the stock fell.

Meantime, Pepsi also beat, and its stock rose.

Some good news, opposite reactions.

How does that happen?

And what's the first lesson of earnings season, which, is

starting to kick off this week?

So regime lab is red across the board today.

The Dow's down around 350 points.

It came back for a little bit.

It's back down around 200 now.

And yes, the familiar villains are back.

Oil jumped on fresh Mideast tensions.

Yield ticked up on hawkish Fed talk, and we've beaten those to

death over the last couple weeks.

So I'm gonna leave that right there because the more useful thing as earnings

season opens is to watch the reactions.

Taiwan Semi beat its sales numbers and fell 2%.

Pepsi beat on the quarter, lowered its forecast, and also mentioned

layoffs, and it still rose 2%.

NVIDIA's testing a key level as well.

The headline said "beat," but the stocks did very different things.

The gap is where the real information is.

So why does a company beat expectations and still drop?

Three reasons, and they're the whole game in earnings season.

One, expectations.

If everyone is already expected a blowout, merely beating is a letdown, and the good

news was already baked into the price.

That's sell on the news, and that was definitely Taiwan Semi,

which ran up earlier in the week.

And of course, it was a sell on the news event.

And it's a stock that's run up really for an entire year now.

So good, not great number disappoints.

Two, guidance.

The market carries far less about the quarter than just what happened.

That's the history.

Then about what the company says about the future.

Three is the setup, where the stock already sits, and that's the key to Pepsi.

It was down almost thirty percent from its high, beaten

up, expectations on the floor.

So when it beat, even while cutting its forecast, the stock bounced

because the bar was set so low.

Same kind of a beat, opposite result.

The lesson doesn't or doesn't ask, did they beat and did

they beat what was priced in?

And where was the stock sitting before the report?

So as the big reports roll in over the next couple of weeks, don't

react to the headline number.

A beaten down quality company that beats, like Pepsi today, can actually be a better

opportunity than a price for perfection high flyer that beats and fades.

The crowd sells the disappointment and the hot name and ignores the ge-

the quiet recovery in the unloved one.

Your edge isn't knowing whether that they beat.

The whole world knows that in a second.

Your edge is understanding what was expected and how the set or

the stock was set up going in.

So this is the tell for all of earning season.

Standing now, watch the reaction, not the number.

A stock that beats and rises is telling you the strength wasn't fully expected.

That's real.

A stock that beats and falls is telling you perfection was priced in.

Delta reports tomorrow, which is the first big company of this cycle.

The big banks next week, which watch which ones beat and get

rewarded versus beat and get sold.

That reaction is the most honest read that you get

That's your daily read for the day.

Taiwan Semi beat and fell.

Pepsi beat and rose.

Same good news, opposite reactions, because the market trades

expectations, not headlines.

A rule that I have is I do not invest in any companies more or

less than three days after earnings.

That kinda shakes everything out, so you might wanna use that rule yourself.

Now, welcome to earning season.

Watch the reaction, not the number.

I'm Jeff Kickel with Exit Rich, Retire Free.

Once again, this is education and not advice.

Thanks, and we'll see you guys back here at the very next show.