Stocks week ahead: corporate earnings do not look good. But the drought may soon be over

Stocks week ahead: corporate earnings do not look good. But the drought may soon be over

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Large banks JPMorgan Chase (JPM), Wells Fargo (WFC) and Citigroup (C) reports the results Friday showing that there is still concern about the impact of the pandemic on the behavior of consumers and small businesses. Delta (DAL) also reported a record loss last week as coronavirus came to a standstill.

According to estimates by 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. However, this should be the end of the drought.

FactSet senior earnings analyst John Butters told CNN Business that the S&P 500 earnings should recover in the first quarter, with analysts making a year-on-year jump of nearly 17% in the first quarter forecast and an increase of more than 46% in the second quarter. Butters said full-year profits should rise by more than 22%.

Of course, companies will face relatively easy comparisons with last year, as much of the U.S. economy has been down mainly for a few months since March. This is one reason why stocks have fallen back to near record highs.

But the rash can be justified, especially if vaccinations and stimulus return to normal faster.

Lindsey Bell, chief investment officer at Ally Invest, said in a report that “concerns about valuations could be overshadowed.”

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

Many companies tightened their belts during the pandemic, thus reducing the cost of maintaining profit margins. This means that any increasing sales growth will have a much greater impact on future earnings.

“The very strong margin performance during the pandemic predicts good earnings over the next few years as revenue growth resumes,” said David Lefkowitz and Matthew Tormey, equities strategists at UBS Global Wealth Management, in a report.

With that in mind, investors will be watching the forecasts of big companies when they report their results next week. (US markets closed Monday following Martin Luther King Jr. Day.)

Several other large banks, especially Bank of America (BAC), Goldman Sachs (GS) and Morgan Stanley (MS), is scheduled to log in. Also on tap? Earnings from Netflix (NFLX), United Health (UNH), Procter & Gamble (PG) and United Airlines (UAL).

Two tech giants from the Dow that have made major staff members recently will also report their latest earnings.

IBM (IBM), who recently appointed former Trump economic adviser and former Goldman Sachs chief operating officer Gary Cohn as its vice president, reports that the company is going to tear down a large portion of its older businesses to focus on its cloud operations.
And struggling chip company Intel (INTC), who announced that CEO Bob Swan will retire after just two years, is likely to talk more in his earnings statement about how he can get back on track.

Alibaba faces ‘existential crisis’

This year, the most important for Alibaba (BABY) since it was founded two decades ago, reports my CNN business colleague Jill Disis.

China’s most famous technology enterprise faces numerous challenges at home and abroad that change the risk forever. Chinese authorities are investigating the company on antitrust grounds, while also insisting on its sprawling financial subsidiary, Ant Group, to revamp its business.

To make matters worse, the image of the company – co-founder and former chairman and CEO, Jack Ma – has been out of sight for months.

The other threat is Washington. While the Trump administration has supported a proposal to ban US investment in Alibaba and two other prominent Chinese technology companies, tensions between the US and China are unlikely to go away any time soon.

This could all make for a very rough 2021 for Alibaba.

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

Following

Monday: US markets closed

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

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

Thursday: Baker Hughes, Truist, Union Pacific, IBM and Intel earnings; ECB decision; US initial unemployment claims

Friday: Ally Financial and Schlumberger earnings; US Existing Home Sales

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