It’s all about earnings this week for the markets, as about a quarter of the S&P 500 companies gear up to report results. Some of the heavyweights scheduled to report this week include Procter & Gamble, UPS, McDonald’s, Chipotle, Snap, Caterpillar, Boeing, Ford, Microsoft, PayPal, Tesla, Twitter, Amazon, Intel and American Airlines.
Through Friday, about 18% of the S&P’s market cap reported earnings. “Earnings are beating by 4.9%, with 78% of companies exceeding their bottom-line estimates. This compares to 5.4% and 71% over the past 3 years,” Credit Suisse strategist Jonathan Golub pointed out in a note Friday.
While earnings season has been off to a positive start with big banks delivering solid results, some strategists warn that it is too early to brush off concerns of negative earnings growth. “As any seasoned runner knows, an aggressive pace out of the gate may be difficult to maintain,” Raymond James Chief Investment Officer Larry Adam wrote in weekly note to clients Friday. “As we cautioned last week, headline earnings were expected to decline 4% year-over-year (YoY) in 3Q19, and although earnings typically beat estimates by ~4%, it is likely to ‘come down to the wire’ on whether or not we can skirt negative earnings growth. The next two weeks should provide additional insights, as 284 companies representing ~66% of the market capitalization of the S&P 500 are set to report.”
Adam explained that the tech sector will be a key group to watch this earnings season and reiterated the firms positive outlook on the sector. “There are growing concerns that the slowdown in global economic momentum and the US-China trade war could start to impact the [tech] sector’s earnings,” Adam noted. “Earnings expectations were revised lower by 1.46% in the preceding three months, but that is substantially less than the 3.87% downward revision for the broader market. Over the last ten quarters, the Technology sector has seen the second largest earnings beats at 6.8% and we expect similar success this quarter. Headline risk (e.g., anti-trust debate) could present an opportunity to add exposure, and we maintain our positive outlook on the sector as it has historically been the top performer in an ‘insurance’ rate cut environment.”
Meanwhile, the economic calendar for this week is rather light, and the Federal Reserve will be entering its quiet period ahead of its scheduled policy meeting at the end of this month.
New home sales and durable goods orders will be in focus for investors on Thursday.
Economists are expecting solid data for September’s new home sales. “New single family home sales likely came in at a solid 700k [seasonally adjusted annual rate] in September, down slightly from the 713k [seasonally adjusted annual rate] print in August,” Bank of America Merrill Lynch said in a note Friday. “We take signal from the a couple of indicators: (1) Single family housing starts were little changed in August and (2) the NAHB's present single family sales index rose two points in September. These both point to a solid September print for new home sales.”
Durable goods orders in September are likely to have been negatively impacted by the General Motors strike, according to Bank of America Merrill Lynch. “The preliminary September durable goods orders report should show a 1.3% decline in headline orders,” the firm wrote. “Much of this decline is likely due to the GM-UAW auto strikes, which contributed to a 0.7% mom drop in manufacturing production in September.” Core capital goods orders are expected to remain unchanged in September.
Tuesday: Centene (CNC), Biogen (BIIB), Kimberly-Clark (KMB), Hasbro (HAS), Harley-Davidson (HOG), Procter & Gamble (PG), PulteGroup (PHM), Sherwin-Williams (SHW), UPS (UPS), Lockheed Martin (LMT), McDonald’s (MCD), United Technologies (UTX) before market open; Chipotle (CMG), Whirlpool (WHR), Discover Financial (DFS), Snap (SNAP), Texas Instruments (TXN) after market close
Wednesday: Anthem (ANTM), Eli Lilly (LLY), Vertex Pharma (VRTX), Caterpillar (CAT), Thermo Fisher (TMO), Freeport-McMoran (FCX), Waste Management (WM), Boeing (BA) before market open; Ford (F), O’Reilly (ORLY), eBay (EBAY), Xilinx (XLNX), Microsoft (MSFT), PayPal (PYPL), Las Vegas Sands (LVS), Tesla (TSLA) after market close
Thursday: Southwest Airlines (LUV), Comcast (CMCSA), Valero (VLO), Dow Inc (DOW), T-Mobile (TMUS), Northrop Grumman (NOC), Hersey (HSY), Raytheon (RTN), 3M (MMM), Twitter (TWTR), American Airlines (AAL) before market open; Capital One Financial (COF), Visa (V), Gilead (GILD), Amazon (AMZN), Intel (INTC) after market close
Tuesday: Richmond Fed Manufacturing Index, October (-9 prior); Existing Home Sales, September (5.45 million expected, 5.49 million in August)
Wednesday: MBA Mortgage Applications, week ended October 18 (0.5% prior); FHFA House Price Index month-on-month, August (0.4% prior)
Thursday: Durable Goods Orders, September preliminary (-0.8% expected, 0.2% prior); Durables excluding transportation, September preliminary (-0.3% expected, 0.5% prior); Initial Jobless Claims, week ended October 19 (214,000 prior); Continuing Claims, October 12 (1.679 million prior); Bloomberg Consumer Comfort, week ended October 20 (63.5 prior); Markit US Manufacturing PMI, October preliminary (51.1 prior); Markit US Composite PMI, October preliminary (51.0 prior); New Home Sales, September (699,000 expected, 713,000 in August)
Friday: University of Michigan Sentiment, October final (96.0 prior)
Heidi Chung is a reporter at Yahoo Finance. Follow her on Twitter: @heidi_chung.
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