‘Barron’s Roundtable’ panel gives a response and analysis of the week of the market
An epic stock market is facing a major test in the coming weeks as investors learn what managers expect in the coming periods for profits and earnings.
The earnings season of the fourth quarter kicked off seriously on Friday with better-than-expected profits from some of the country’s biggest banks. Despite a record quarterly profit at JPMorgan Chase & Co. and some light points at Citigroup Inc. and Wells Fargo, all three’s shares fell, with Wells and Citi each falling more than 6%.
The market response highlights the interests as large companies begin to share quarterly results, and, more importantly, their outlook for the coming quarters. Although the results were not terrible, equities were hit hard, reflecting the increase in investor expectations as bank shares climbed more than 10% for 2021 on Friday’s trading.
The rise of key indices to new highs this year, despite an accelerating toll on the coronavirus and questions about how it will affect the economic outlook, underscores the pressure on big business executives to express how they expect results in 2021 will improve. earnings during the S & P’s rise of about 70% from the intraday low in March last year are considered acceptable by investors because many expect a sharp setback this year. According to companies, they can expect to be punished with projections that are not too much.
“Whether they had a good quarter or not, it’s all about the next,” said Kimberly Woody, senior portfolio manager at Globalt Investments, which manages $ 1.9 billion. “Good future news is praised in this market.”
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With the closing of the books in 2020, analysts estimate that profits for companies in the S&P 500 fell by 13% for the year, according to FactSet. Nevertheless, companies in the S&P 500 on Thursday traded 22.65 times their expected earnings over the next 12 months, according to a five-year average of 17.84, according to FactSet.
Dozens of large companies will report this week, including transport company JB Hunt Transport Services Inc., health giant UnitedHealth Group Inc., oilfield services company Halliburton Co. and semiconductor manufacturer Intel Corp.
Earnings for the S&P 500 are expected to have fallen by 6.8% in the fourth quarter from a year earlier, a sharp improvement from the 32% collapse in the second quarter, but not the kind of performance that the stock market records typically does not inspire. Profit estimates have crept higher since the start of the quarter, and some investors expect current forecasts to be a low benchmark that companies will meet.
Buyers of shares are counting on more than a year’s earnings, and many investors believe the market has progressed despite the damage in 2020, as the general opinion is that vaccines will help the pandemic in the past to recover business.
“I think the market is looking a lot at the pandemic, and that’s why we’re seeing it drift higher,” said Greg Marcus, managing director of UBS Private Wealth Management.
This is despite worrying signs of how the pandemic has hit the economy recently: Employers cut 140,000 jobs last month, ending seven months of job growth, and U.S. retail sales fell for a third month in a row in December.
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Earnings for the S&P 500 are expected to grow year-on-year in the first quarter, up 17% and then up 46% in the second quarter. And economists have raised their predictions for U.S. economic growth in light of vaccinations and the possibility of additional help from Washington for households and businesses.
Inventories, usually linked to economic prospects, have been doing well in recent times. Since the beginning of the fourth quarter, the financial sector of S&P 500 has increased by 28%, while the materials group has increased by 19%. The technology sector, which led the benchmark index in 2020, rose 9.1%.
In December, US Bank Wealth Management increased its shares by buying shares of US companies, said Lisa Erickson, head of the traditional investment group.
“As we continue to see progress on the economic front with the vaccine – and see companies stay in a difficult environment by 2020 – it has really given us confidence that areas that have been used more to reopen could perform better,” he said. she said.
The expectations of the earnings point to a brightening picture for some of these cyclical groups. The materials and S 500 sector is forecast to show the best earnings growth in the fourth quarter, with 8.6%. Earnings at financial companies are expected to rise by 3.5%, a sharp improvement from the 24% forecast at the end of September.
Among the S&P 500 companies that reported their earnings, most beat expectations. These include home builder Lennar Corp., which reported higher profits because low borrowing costs and shifts in housing preferences have driven the demand for home ownership.
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Some investors are hoping that corporate executives will shed light on the changes being fueled by the pandemic, which could survive consumer spending habits.
“We think some of the spending changes are tough,” said Matt Stucky, portfolio manager at Northwestern Mutual Wealth Management Company. “If you get a pet, it’s more than a 12-month sign-up in terms of the expenses you’re going to spend on pet-related products.”