Stock market: 6 lessons from an ugly 3rd quarter

Yahoo Finance Live's Brian Sozzi provides his take on the state of the stock market as well as the six lessons he's learned from an ugly third-quarter.

Video Transcript

BRAD SMITH: It has been a brutal quarter for the markets, but tough times are a good time to learn some tough lessons, too, sometimes. Brian Sozzi has a list of everything he learned in his take today. Sozz, where do we begin?

BRIAN SOZZI: Oh, so deep today. You brought the voice down, too. I thought somebody was going to start crying or something here.

BRAD SMITH: Oh, yeah, from that storm over here.

BRIAN SOZZI: Holy cow. All right, well, here are a couple of things that I think I learned throughout this quarter. I'll have more on this on my newsletter, the "Morning Brief" newsletter on Monday, so I don't want to give away all the leg here. But I will show you a little something.

First up, question everything an executive says at least 50 times. Brad and I have been talking all morning long about earnings calls from a Micron and Nike. These execs hop on these conference calls, tell you things are going great in the long-term. Well, sometimes they're just not. Sometimes when you get the long-term, things still suck. And be mindful of what these folks are saying on these conference calls.

Next, respect the power of Wall Street earnings estimates. We are seeing some whopping, whopping earnings warnings continue to rain down before earnings season picks up. VF Corp, of course, highlighting-- really highlighting that this week, missed or taking down their guidance by close to $0.50, which is a big warning. Understand that earnings estimates matter, and they're probably all pretty much wrong right now.

Next up, turning around a struggling company in a recession is damn near impossible. I'm looking right at Bed, Bath & Beyond for that one because they're right in the middle of a turnaround, like we learned in their earnings results this week. And it's going to be incredibly hard to turn that business around and save it in an environment where economic growth is slowing.

Next, cash is king. Have to have a lot of cash in this environment. That you should be paying a lot attention to corporate balance sheets. Next, remember that the US isn't the only country in the world. We learned this week that you should be paying probably more attention to currency moves out of the UK, what is happening with overseas government debt. You have to watch these things because it impacts the top and bottom line sales of companies in the US. We saw that in Nike's quarter last night, six percentage point hit due to the stronger dollar.

And last but not least, read the room and understand the moment. There's a lot coming at you as an investor. I now understand you probably have to be doing more work and putting more time in than you are doing at this moment in time. And then lastly, my take-- be incredibly guarded in the fourth quarter. Really, yes, that is me being guarded. My shields are up. I'm questioning everything. Anything executives tell me, I'm not necessarily believing it. I'm taking a lot of these comments, and I'm doing more of my own research.

BRAD SMITH: I mean, this is at a time, too, where even on the investor side, some of the institutions are just teeing up the Yolanda Adams, "this, too, shall pass." But the question is, what time frame are we looking out towards? If you've got economists talking about, look, we could see a recession in the US and a global recession as well really hit the kind of peak of those feelings around some time in the midpoint of 2023, we've still got six months till the midpoint of 2023.

And so over that amount of time, what is the sentiment hit that takes on? And fortunately, consumer confidence, we've seen some positivity there recently, but over an extended period of time, you know, where does that really start to set in, and how does that get priced in earlier ahead of time with the markets, too?

BRIAN SOZZI: It's just the long-term.

BRAD SMITH: It's over the long-term.

BRIAN SOZZI: It's just the long-term, which usually, as an investor, you want to think about it in three to five years. But best believe, in the fourth quarter, you're going to see companies hold investor days in November and early December and put out five-year targets that take you out to 2028 because things are so bad right now, they want to give hope to investors, almost 2030 guidance. It's coming. I'm telling you, you're going to see this.

BRAD SMITH: I mean, what's the point of putting out a target that--

BRIAN SOZZI: It just sounds good.

BRAD SMITH: You've got a general election that's going to happen between now and then. Anyway, we got to go. All right.