Stocks coming week: Corporate earnings are not very good. But the drought may be over soon

by



[ad_1]

Big banks JPMorgan Chase (JPM), Wells fargo (WFC) and Citigroup (VS) Results on Friday showed there were still concerns about the impact of the pandemic on the behavior of consumers and small businesses. Delta (OF) also reported a record loss last week as ground travel from the coronavirus came to a halt.

According to estimates from FactSet Research, companies in the S&P 500 are expected to report that their profits have fallen by about 7% in the last three months of 2020 compared to the fourth quarter of the previous year. This should mark the end of the earnings drought, however.

Senior FactSet earnings analyst John Butters told CNN Business S&P 500 earnings are expected to rebound in the first quarter, with analysts forecasting a nearly 17% year-over-year jump in the first quarter and more than 46% in the second quarter. For the full year, Butters said profits are expected to increase by more than 22%.

Of course, companies will face relatively easy comparisons to last spring given that much of the US economy essentially shut down for several months beginning in March. This is one of the reasons why stocks have returned to near record levels.

But the rally may be justified, especially if the vaccinations and stimuli lead to a faster return to normal.

Lindsey Bell, chief investment strategist at Ally Invest, said in a report that “valuation concerns may be overblown.”

“There is also a good chance that Wall Street is underestimating earnings growth in 2021. Earnings estimates for this year continue to rise,” she added.

Many companies tightened their belts during the pandemic, cutting costs in order to preserve profit margins. This means that any further growth in sales will have a much bigger impact on future profits.

“The very strong performance of margins during the pandemic bodes well for earnings growth over the next two years as revenue growth resumes,” said David Lefkowitz and Matthew Tormey, equity strategists at UBS Global Wealth Management, in a report.

With that in mind, investors will be keeping an eye on big business forecasts when they release their results next week. (U.S. markets are closed Monday for Martin Luther King Jr. Day.)

Several other large banks, including Bank of America (BAC), Goldman Sachs (GS) and Morgan stanley (SP), must report. Also on tap? Gains Netflix (NFLX), UnitedHealth (A H), Procter & Gamble (PG) and United Airlines (UAL).

Two tech giants at the Dow that have been making big staff moves lately are also set to release their latest results.

IBM (IBM), who recently hired Gary Cohn, former Trump economic adviser and former chief operating officer of Goldman Sachs as vice chairman, reports that the company is on the verge of seceding much of its former business in order to focus on its cloud operations.
And the struggling chip company Intel (INTC), who announced CEO Bob Swan would step down after just two years at the helm, will likely talk more in his earnings release about how he can get back on track.

Alibaba faces an ‘existential crisis’

This could be the most significant year for Ali Baba (BABA) since its inception two decades ago, reports my CNN Business colleague Jill Disis.

China’s most famous tech company faces a host of challenges at home and abroad that threaten to fundamentally change it forever. Chinese authorities are investigating the company on antitrust grounds, while also pushing its sprawling financial subsidiary, Ant Group, to review its operations.

To make matters worse, the company’s figurehead – co-founder and former CEO Jack Ma – has been out of public view for months.

The other threat is Washington. While the Trump administration has quashed a proposal to ban U.S. investments in Alibaba and two other major Chinese tech companies, tensions between the U.S. and China are unlikely to go away anytime soon.

All of this could make 2021 very difficult for Alibaba.

“Alibaba, like all other major Chinese technologies, is [an] existential crisis, ”said Alex Capri, research fellow at the Hinrich Foundation and visiting principal investigator at the National University of Singapore.

next

Monday: US markets close

Tuesday: Bank of America, Goldman Sachs, State Street and Netflix results

Wednesday: BNY Mellon, Morgan Stanley, Procter & Gamble, UnitedHealth and Alcoa results; EIA report on crude inventories

Thursday: results from Baker Hughes, Truist, Union Pacific, IBM and Intel; ECB decision; Initial unemployment claims in the United States

Friday: results from Ally Financial and Schlumberger; Sales of existing homes in the United States

[ad_2]

Source link