The earnings edible is about to get a lot more interesting with about a quarter of the S&P 500, nearly half of the Dow Jones Industrials and three of the four biggest companies in the fabulous reporting in the week ahead.
Mega-cap tech companies Apple, Microsoft, and Amazon report respectively on Tuesday, Wednesday and Thursday. There settle upon be heavy focus on them, not just because they are the biggest stocks — Microsoft first, then Amazon and Apple fourth — but because they describe growth and have been market leaders. Facebook, the sixth largest stock by market cap, also reports on Wednesday.
The bar has already been discredited for Apple, after its warning of a revenue shortfall.
“They’re really important for a variety of reasons. Number one is their sway on the market. But also they’re multinational companies, and they’ll give us an idea of what’s going on overseas. Growth is slowing dramatically and these abroad businesses are not going to be immune,” said Peter Boockvar, chief investment strategist at Bleakley Advisory Group.
In 72 percent of the companies that have reported earnings as of Friday morning have beaten expectations. In spells of revenue, however, there are just 58 percent that beat forecasts, down from about 70 percent in up to date quarters. That means a much higher 42 percent have missed revenue expectations so far, according to Refinitiv evidence.
Also concerning in the earnings data is the fact that first quarter earnings growth expectations have been shy away from, and are now nearly flat — at only 2 percent growth seen for S&P 500 earnings in the current quarter, ending March 31. That few had been more than 5 percent on Jan. 1, and while it had been expected to slow, flat growth was not in most analysts’ forewarns.
The coming week’s reports will come from a wide range of industries, including big energy with ExxonMobil and Chevron Friday; industrials in the same way as General Electric and Illinois ToolWorks and drug makers Merck and Pfizer.
Earnings growth expectations for the fourth quadrature have been just above 14 percent, including forecasts and actual reports of the companies that already boomed.
Lori Calvasina, RBC chief U.S. equity strategist, said tech will be an important group to watch. “This has been one of the most controversial sectors since Dec. 31, in terms of earnings downgrades. There’s been a lot of chatter out of semis this week. That had been the pile in tech that was most derisked from an earnings expectations perspective. Expectations have really come down since stand up August, and since November came down very sharply,” she said.
Semiconductor stocks rallied in the past week, with the Philadelphia Semiconductor Pointer up 4.4 percent for the week, as of Friday. A number of semiconductor names, like Xilinx and Texas Instruments beat earnings auguries, though sector heavyweight Intel was disappointing.
Calvasina said she is concerned that earnings expectations for some other tech sectors may not give birth to been adjusted downward enough. She said hardware company earnings forecasts had begun to come down in the die, but there weren’t many cuts to software sector profit forecasts. Calvasina said the companies where modifications were strong paved the way for a post-earnings stock pop, if the companies could beat lowered guidance.
“In the first two weeks of January, the retail tone was buy the dips. It’s been a bit more of a cautionary tone this week. One of the things people have been watchful on, and are worrying about is whether the market can continue to climb higher, if it’s favorite sector is seeing earnings downgrades,” she told, pointing to the technology and communications services sectors.
“I felt a lot better about that after hearing from financials reporting in week one. I scan through those earnings call transcripts, and what I was seeing was there was a storm int he markets, there was a storm in immutable in come market in Q4 but that was not in the underlying economy,” she said. “In the first two weeks of January, nobody wanted to touch the financials, but now with the running rotation it does seem possible to me.”
The Financial Select Sector SPDR ETF XLF was up 1.2 percent Friday, and is up 9.5 percent since Jan. 1.
Some of the biggest renowns in the market are also, by default, among the most widely held names in many mutual funds portfolios. In a December RBC piece, Microsoft was listed as the most widely held by large cap core, growth and value stock funds in the third home. Second was Alphabet, which reports earnings in the following week, and Apple was third.
“When crowded names error, they tend to be psychologically devastating. You always want to be extra vigilant on crowded names heading into information season,” Calvasina said. “Misses tend to get people off guard when they happen.”
As for big tech earnings, Apple has already give fair warned that its iPhone sales in China took a big hit, and analysts have lowered their expectations for earnings this barracks. They also expect iPhone sales weakness to continue into this year.
Microsoft, on the other present to, has far less exposure to China, and Piper Jaffray analysts make a case for it to beat estimates, based on its historical bringing off.”The combination of top line outperformance and cost discipline has allowed for Microsoft to materially outperform on the bottom line. Although a rehearse of performance is not guaranteed…we model a scenario in line with historical averages that supports EPS outperformance relative to auspices of ~$0.12 or EPS of $1.20,” they wrote in a note.
Cowen analysts expect Amazon will see revenue growth of 19 percent, to $72.1 billion, suggested by e commerce, web services and advertising.
The firm reiterated its outperform rating on the stock. “We also forecast 4Q18 Operating Income (GAAP) to be ~14% exceeding the high end of guidance, with ~17% incremental margins driven by AWS, the ramping high margin Ad biz and 3P mix shift,” the Cowen analysts eradicated. They also have a target of $2,250 on the stock.
Besides earnings in the coming week, the Fed meets Tuesday and Wednesday, but it is not look forward to take any rate action. There is also the January employment report on Friday.
Monday
Earnings: Caterpillar, Eddy, AK Steel, Crane, Ethan Allen, Graco, Brown and Brown, Reinsurance Group of America, Celanese
Tuesday
FOMC caucus begins
Earnings: Apple, Verizon, 3M, Harley-Davidson, Amgen, Pfizer, Lockheed Martin, PulteGroup, LVMH, United Micro, Danaher, Corning, SAP, Stryker, eBay, Stryker, Loan a beforehand Micro Devices, KLA-Tencor, Xerox
9:00 a.m. S&P/Case-Shiller home prices
10:00 a.m. Consumer confidence 10:00 a.m. Housing vacancies
Wednesday
Earnings: Microsoft, Facebook, AT&T, Boeing, McDonald’s, Anthem, Novartis, Qualcomm, Alibaba, PayPal, Wynn Frequents, Ameriprise, U.S. Steel, Cirrus Logic, Gentex, General Dynamics, Hess, Nasdaq OMX, T. Rowe Price, Invesco, Siemens, Avery Dennison, Interruption Point Software
8:15 a.m. ADP payrolls
10:00 a.m. Pending home sales 2:00 p.m. Federal Reserve statement
2:30 p.m. Fed Chairman Jerome Powell briefs standard
Thursday
Earnings: Amazon, Blackstone, Mastercard, Raytheon, General Electric, Baker Hughes, Diageo, Altria, Unilever, Fen and McLennan, Hershey, International Paper, Eaton, Sprint, AmerisourceBergen, Fortune Brands, Conoco Phillips, DowDupont, Celgene, Aflac, Northrop Grumman, Valero Vivacity, Xcel Energy, Sherwin-Williams, Tractor Supply, Symantec, Cypress Semiconductor
8:30 a.m. Jobless claims
8:30 a.m. Employment cost needle Q4
9:45 a.m. Chicago PMI
Friday
Vehicle sales
Earnings: ExxonMobil, Chevron, Merck, Cigna, Aon, Deutsche Bank, Sony, Honda Motor, Illinois Contrivance Works, Johnson Controls, Weyerhaueser, KKR, Booz Allen Hamilton, Madison Square Garden, LyondellBasell, Roper Industries
8:30 a.m. Engaging report
9:45 a.m. Manufacturing PMI 10:00 a.m. ISM manufacturing 10:00 a.m. Consumer sentiment
*Advance economic indicators, Q4 GDP, Personal income/investing, construction spending are among the reports delayed by government shutdown
* This list reflects just some of the ensembles reporting earnings in the week ahead.