After the stock surge, investors ask companies what to expect

An epic stock rally faces a key test in the coming weeks, as investors learn what executives expect from earnings and income in the periods ahead.

The fourth quarter earnings season kicked off on Friday with better-than-expected earnings from some of the nation’s biggest banks. Despite record quarterly earnings at JPMorgan Chase & Co. and some bright spots at Citigroup Inc. and Wells Fargo & Co., shares of all three fell, with Wells and Citi each falling more than 6%.

Market reaction highlights the issues as large companies begin to share their quarterly results and, more importantly, their outlook for the quarters ahead. While the results weren’t terrible, stocks were hit hard, reflecting rising investor expectations as bank stocks climbed more than 10% for 2021 heading into Friday’s session.

Major indices skyrocketing to new highs this year, despite an accelerated toll of the coronavirus and questions about how it will affect the economic outlook, underlines the pressure on big business executives to explain how they expect for results to improve in 2021. Soft earnings during the S&P’s roughly 70% rise from last March’s intraday low were deemed acceptable by investors as many expect a sharp rebound this year. Companies with insufficient projections can expect to be punished, they say.

“Whether they had a good quarter or not, it all depends on what happens next,” said Kimberly Woody, senior portfolio manager at Globalt Investments, which manages $ 1.9 billion. “Good news for the future has been incorporated into this market.”