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Earnings season in full swing, Fed blackout period: What to know this week

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Earnings season is heating up this week.

Even with one fewer trading day as markets are closed in observance of Martin Luther King Jr. Day Monday, investors will come back from the holiday weekend to a prolific lineup of fourth quarter reports from market heavyweights such as Goldman Sachs (GS), Proctor & Gamble (PG), Netflix (NFLX) and United Airlines (UAL). The period kicked off in earnest last week with lackluster results from major U.S. banks. JPMorgan (JPM), Wells Fargo (WFC), and Citigroup (C) were among the financial forms posting less-than-impressive results that dragged on Wall Street and tempered expectations for a strong start to the earnings season.

As fourth quarter earnings reports pick up speed, investors will shift their focus from monetary policy to look for signs of relief in company profits and other corporate metrics after economic uncertainty and worries around the Federal Reserve’s pace of interest rate hikes have weighed heavily on markets to start the new year.

The S&P 500 is down 2.79% in 2022 so far, while the Dow has lost 1.84%. The Nasdaq has shed a whopping -5.93% year-to-date, with more than one third of companies in the index at least 50% from their 52-week highs, according to Bloomberg data.

Traders eyeing earnings season work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., January 10, 2022.  REUTERS/Brendan McDermid
Earnings season kick into high gear this week. REUTERS/Brendan McDermid

“We’ll have to see if earnings season comes to the rescue once again,” Ed Clissold, chief U.S. strategist at Ned Davis, told Bloomberg earlier this week. “Still, earnings revisions over the past several weeks weren’t as strong as other pre-announcement periods last year, which leads us to believe that we may not get those fantastic beat rates.”

In the energy and industrials sector, which typically serves as a key driver in fourth quarter results, underlying fundamentals may lack the strength to power markets this earnings season, PNC chief investment officer Amanda Agati told Yahoo Finance Live.

“Investors need to be starting to set their expectations a bit lower,” she said. “Not necessarily bearish, but we do think the moderation in terms of growth not only for earnings season going forward, but also for economic growth is really going to be a dominant theme."

S&P 500 earnings in aggregate were expected to grow 21.7% for the fourth-quarter of 2021, according to recent data from FactSet Research vice president and senior earnings analyst John Butters. That figure would mark a fourth consecutive quarter that earnings growth tops 20%.

Industry experts have previously predicted companies in the S&P 500 will report record-high earnings per share in 2022. Butters has pointed out that the bottom-up EPS estimate for the S&P 500 was $222.32 as of last month. If the forecast meets expectations, this would be the highest annual EPS number for the index since FactSet began tracking this metric in 1996.

FactSet reported that, on average, analysts have overestimated the final EPS number by 7.2%. Even taking the overestimation into account, the final EPS value of $206.32 for 2022 would still beat previous records.

The bottom-up EPS estimate for the S&P 500 is $222.32, a figure that would mark the highest on record, according to FactSet data.
The bottom-up EPS estimate for the S&P 500 is $222.32, a figure that would mark the highest on record, according to FactSet data.

Continued signs of Omicron’s economic impact and increasing indication by the Federal Reserve that it will intervene more aggressively to curb rising inflation, however, continue to dampen the outlook for 2022.

“Our expectation is that we're going to have a very solid and robust earnings season,” Schwab Asset Management CEO and CIO Omar Aguilar, though adding that the coming quarters may reflect the toll of Omicron more heavily than fourth quarter numbers.

“That being said, we expect the earnings to continue to decelerate — still very robust and in a good place as companies continue to drive to generate free cash flow and generate business,” but we will hear a lot about supply chain disruptions and the potential higher costs in these sectors that may have been transitioned to consumers.

"I think what investors are really focused on is what are these CEOs going to say about two primary things, number one being inflation," TD Ameritrade Chief Market Strategist JJ Kinahan told Yahoo Finance Live.

"For the financials, it'll probably be more wage inflation and their ability to retain workers and pay up... and then on the other end of that, for the non-financials, perhaps it's more of whether they can go through supply chain issues, because of COVID or because of the cost of inflation, to deliver goods to their end customers."

Meanwhile in Washington, Fed policymakers will enter a blackout period this week ahead of the Federal Open Market Committee’s (FOMC) next meeting on Jan. 26. The central bank has been top of mind for investors bracing for interest rate increases and tighter financial conditions that could come as soon as March.

In confirmation hearings last week, Fed officials have doubled down on earlier assertions that the central bank is prepared to mitigate inflation through higher interest rates.

Federal Reserve Chair Jerome Powell told Congress Tuesday that if the pace of price increases does not settle, policymakers will get more aggressive with raising short-term borrowing costs. In a separate hearing on Thursday, Fed governor and vice chair nominee Lael Brainard pledged to use that "powerful tool" — the central bank's benchmark for short-term interest rates called the federal funds rate — to bring inflation down over time.

Economic calendar

  • Monday: Markets closed in observance of Martin Luther King Jr. Day; No economic reports scheduled for release

  • Tuesday: Empire Manufacturing, January (25 expected, 31.9 prior); NAHB Housing Market Index, January (84 expected, 84 prior); Net Long-Term TIC Flows, November ($7,100,000,000 prior); Total Net TIC Flows, November ($143,000,000,000 prior)

  • Wednesday: MBA Mortgage Applications, week ended January 14 (1.4% during prior week); Building Permits, December (1,700,000 expected, 1,712,000 during prior month, upwardly revised to 1,717,000); Building Permits, month-over-month, December (-1.0% expected, 3.6% during prior month, upwardly revised to 3.9%); Housing Starts, December (1,650,000 expected, 1,679,000 during prior month); Housing Starts, month over month, December (-1.7% expected, 11.8% during prior month)

  • Thursday: Initial Jobless Claims, week ended January 15 (220,000 expected, 230,000 during prior week) Continuing Claims, week ended January 15 (1,521,000 expected, 1,559,000 prior week); Philadelphia Fed Business Outlook, January (19.8 expected, 15.4 prior); Existing Home Sales, December (6,410,000 expected, 6,460,000 during prior month); Existing Home Sales, month over month, December (-0.8% expected, 1.9% during prior month);

  • Friday: Leading Index, December (0.8% expected, 1.1% prior)

Earnings:

  • Monday: Markets closed in observance of Martin Luther King Jr. Day; No reports scheduled for release

  • Tuesday: Goldman Sachs (GS) before market open, PNC Bank (PNC) before market open, Bank of New York Mellon (BK) and Truist Financial (TFC) before market open; Interactive Brokers (IBKR), Hunt Transport (JBHT) after market close

  • Wednesday: Bank of America (BAC) before market open, Charles Schwab (SCHW), Procter & Gamble (PG) before market open, United Health (UNH) before market open, Morgan Stanley (MS) before market open, United Airlines (UAL) after market close, Discover Financial (DFS) after market close, State Street (STT) before market open, Comerica (CMA) before market open, Citrix Systems (CTXS)

  • Thursday: Travelers (TRV) and American Airlines (AAL) and Northern Trust (NTRS) before market open; Netflix (NFLX) at market close

  • Friday: Schlumberger (SLB), Ally Financial (ALLY)

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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