Prophet Warnings

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What's going on?

Hold on… yes, it’s coming to us… International Airlines Group (IAG) – parent company of British Airways (BA) – and tobacco giant Imperial Brands have seen lower earnings in their futures, and they warned investors as much on Thursday.

What does this mean?

Earlier this month, BA’s pilots went on strike over their salaries for the first time ever, causing thousands of canceled flights and leaving hundreds of thousands of stranded travelers. The resultant lost income – coupled with a slowdown at Vueling and Level, IAG’s other airlines – means the company now foresees $215 million less in its 2019 profit than its previous prediction.

Imperial Brands is sensing a strike too – against teen-favorite flavored e-cigarettes by the US government (and a major grocery chain… we’re getting a “Walmort”?). The recent crackdown on their sale means Imperial’s annual revenue growth is now likely to be 2% – rather than the roughly 4% it’d promised investors.

Why should I care?

For markets: A whole new crystal ballgame.

Investors, naturally, tried to divine the impact of lower-than-expected earnings on both companies. IAG’s stock fell by 5%, likely reflecting the reduction in its annual profit forecast. And the company warned its fortunes won’t necessarily improve next year, either: tough competition means it’ll probably grow more slowly. But now rival Thomas Cook isn’t around, some investors might feel optimistic nonetheless. Imperial’s stock, meanwhile, dropped 13% – probably because the loss of a new revenue source in the important US market will disrupt its psychic energies for years to come.

For you personally: Less clairvoyant, more bear-voyant.

The news cycle changes rapidly, but the savviest investors (we’re talking to the right crowd, then 😉) know some market effects last a lot longer than the headlines do. A company might still blame a seemingly done-and-dusted event for its results months later. And sharp moves in stock prices – like Thursday’s – might in fact suggest investors hadn’t adequately factored the risks into their forecasts to begin with (tweet this).

Originally posted as part of the Finimize daily email.

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