After the holiday quarter yielded a recession last year, the same is not expected this year, but it is not impossible and could happen in three months.
Quarterly gains for the S&P 500 SPX,
it is expected to decline as fourth-quarter results roll in over the coming weeks, after declining in each of the first three quarters of 2020. However, analysts predict an upswing throughout 2021, as well as fourth-quarter numbers that exceed their average expectations.
CFRA chief investment strategist Sam Stovall told MarketWatch that expectations for the numbers in the fourth quarter would match historical patterns. Earnings were above expectations for more than 30 consecutive quarters before the first quarter of 2020, he said when the pandemic first hit corporate results. An overall earnings blow this quarter will help increase a new series of beats to three in a row.
One important question for FactSet analyst John Butters is whether earnings could end up on positive territory in the quarter, even if the estimate is 6.8% lower. Based on the five-year historical trend alone, this does not seem likely, but companies have taken much stronger blows over the past two quarters, meaning an end to the earnings recession could be a possibility. The few reports that have appeared so far in the fourth quarter have exceeded earnings expectations by an average of about 26.2%, Butters wrote.
What you need to know to prepare for the earnings season: Expect another quarter of the big earnings generation
The pandemic has had an unequal impact on businesses, with digital giants like Amazon.com Inc. AMZN,
and Zoom Video Communications Inc. ZM,
benefit from an increasingly remote world while categories such as leisure, hospitality and restaurants struggle. Cruise lines, hotels and airlines are expected to see a huge negative income in earnings compared to a year earlier, which will cause the S&P 500 to decline.
The energy sector is expected to be the biggest loser for the fourth quarter, with analysts polled by FactSet showing a 101% decline.
“In our opinion, the causes of the decline are large across both upstream and downstream sections of the energy value chain,” CFRA analysts wrote.
West Texas Intermediate CL00,
the U.S. crude oil benchmark reached an average price of $ 40 a barrel during the quarter, 29% lower than a year earlier, analysts said: ‘Getting nearly 30% less for a product makes it certainly hurts, and with about two out of every three barrels of oil equivalent consisting of liquids (such as crude), the price drop made a major contribution. ”
According to FactSet, only four sectors are expected to generate positive earnings momentum in the quarter, led by material with an expected growth of 8%. Within the sector, the category of metals and mining as well as industrial gases can perform strongly, the CFRA analysts said.
The other sectors that are expected to show positive growth are consumer products, healthcare and information technology, according to FactSet.
The earnings season kicks off seriously in the coming week, with 40 members of the S&P 500 joining six Dow Jones Industrial DJIA,
component. Highlights include Netflix Inc. NFLX,
United Airlines Holdings Inc. UAL,
and Intel Corp. INTC,
Here’s what you need to look out for in the coming week.
Bank on it
Looking for a steady stream of bank earnings, led by Bank of America Corp. BAC,
and Goldman Sachs Group Inc. GS,
on Tuesday morning with Morgan Stanley MS,
follow a day later. Citigroup Inc. C,
and Wells Fargo & Co. WFC,
started the financial parade on Friday, and both showed better-than-expected profits with disappointing revenues.
Bank shares have outperformed the S&P 500 since the end of September.
“A positive narrative has emerged: faster economic growth and expanding fiscal policies are driving rising net interest income (NII) and declining credit costs, while the resumption of share buybacks further increases profitability and profit,” Saul said. UBS analyst Martinez wrote in a note to clients. , although he continues to be a little more cautious with the sector. One of Martinez’s concerns is that a mortgage income should fall on the earth from the increased level of 2020. ‘
Press play
Netflix had a red-hot first half of 2020, but struggled in the third quarter to catch up with that momentum. The company will try to get back on track when reporting its fourth-quarter results, which will show how popular shows like ‘The Queen’s Gambit’ and a new season of ‘The Crown’ are influencing subscriber trends had.
Full preview: Netflix may struggle to have a successful sequel to early pandemic subscribers
Another important area you need to monitor is the impact of price increases on levels. The company raised prices in the U.S. and Canada during the fourth quarter and ‘evidence is growing that we will see widespread price increases in 2021,’ according to Bernstein analyst Todd Juenger.
Netflix reported the results Tuesday afternoon.
End of an era
Intel is heading in a new direction after recently releasing VMware Inc. VMW typed,
CEO Pat Gelsinger will take over his middle role in mid-February. However, investors will hear one last time from the old guard when the disk giant holds its earnings call on Thursday afternoon.
For more information: Can Intel’s ‘boy wonder’ draw a Steve Jobs?
Although the call may not cast the new vision for Intel, the company said in a press release that Gelsinger’s appointment has announced that it has made strong progress with its 7 nanometer processing technology and plans to deliver an update. in conjunction with the earnings. Intel also announced that it expects its revenue and revenue to exceed the company’s prospects in the fourth quarter.
Intel has struggled with a series of technological flaws over the past few years and will want to get back on track in 2021.
Slow rise
Domestic travel picked up in the fourth quarter, especially around the holidays, but United Airlines and the rest of the airline industry still have a lot of pain ahead. Helane Becker, an analyst at Cowen & Co., predicts revenue in the first quarter could drop by 45% from levels seen in the first quarter of 2019, given depressed rates and a slower-than-expected vaccination. United will offer its perspective on the situation with its Wednesday afternoon report and its returns for Thursday morning.
A Cut from the Dow
Six Dow Jones operating average components are on the dossier, starting with Goldman Sachs on Tuesday morning and then Procter & Gamble Co. PG,
and UnitedHealth Group Inc. UNH,
Wednesday morning. Travelers Cos. Inc. TRV,
begins the lead on Thursday morning, while Intel and IBM, International Business Machines Corp.,
round off the day after the closing clock.
IBM could share more about a sales reorganization taking place at the enterprise as it seeks to simplify the customer experience. “This move will inherently enable IBM to penetrate their customer base more deeply and expand their wallets,” Evercore ISI analyst Amit Daryanani wrote in a recent note to customers.