The market managed to eke out gains for the second week in a row. Both the S&P 500 (^GSPC) and Dow (^DJI) were more than 2% higher, while the tech-heavy Nasdaq (^IXIC) rose more than 3% to cap off the week.
Earnings season is back. Investors can expect a busy week of big bank earnings with Citigroup (C) kicking things off before the bell on Monday. Media behemoth Netflix (NFLX) will also be reporting on Thursday after the bell.
According to FactSet, analysts expect S&P 500 earnings to have climbed by 10.6% year-over year during the period.
“If 10.6% is the actual growth rate for the quarter, it will mark the fifth straight quarter of double-digit earnings growth for the index,” FactSet’s John Butters said on Friday.
Though Credit Suisse analysts recommend not spending to much time looking backward at Q4.
“Given the market’s recent pullback, trade concerns, and weaker expected 2019 growth, investors will likely be far more focused on guidance than 4Q results,” Credit Suisse’s Jonathan Golub said last Monday. “Excluding the impact of oil’s decline and Apple’s recent announcement, revisions are in-line with historical trends.”
UBS’ Chief U.S. Equity Strategist Keith Parker expects a couple of key themes to emerge this earnings season. One of the key themes will likely be trade war impacts. “We estimate -1.3% earnings growth assuming 25% tariffs on all US-China trade in further escalation,” Parker wrote in a note to clients.
Monday: Citigroup before market open
Though retail sales data is still scheduled to be released on Wednesday, it is expected that the release will be postponed due to the partial government shutdown. Market watchers can expect the Producer Price Index (PPI) data on Tuesday. “Plunging energy prices are likely to have dragged headline PPI inflation lower in December, while we also expect further evidence that underlying price pressures are easing,” Capital Economics predicted in a note.
Tuesday: Empire Manufacturing, January (11.8, 10.9 prior); PPI Final Demand month-on-month, December (-0.1% expected, +0.1% prior); PPI excluding Food & Energy month-on-month, December (+0.2% expected, +0.3% prior); PPI Final Demand year-on-year, December (+2.5% expected, +2.5% prior); PPI excluding Food & Energy year-on-year, December (+3.0% expected, +2.7% prior)
Wednesday: MBA Mortgage Applications, week of January 11 (23.5% prior); Retails Sales Advance month-on-month, December (+0.1% expected, +0.2% prior); Retail Sales excluding Auto month-on-month, December (+0.0% expected, +0.2% prior); Retail Sales excluding Auto & Gas, December (+0.4% expected, +0.5% prior); Import Price Index month-on-month, December (-1.3% expected, -1.6% prior); NAHB Housing Market Index, January (56 expected, 56 prior); Total Net TIC Flows, November ($42 billion prior); Net Long-term TIC Flows, November ($31.3 billion prior)
Thursday: Housing Starts month-on-month, December (+0.2% expected, +3.2% prior); Building Permits, December (1.288 million expected, 1.328 million prior); Housing Starts, December (1.258 million expected, 1.256 million prior); Philadelphia Fed Business Outlook, January (10.0 expected, 9.1 prior revised); Initial Jobless Claims, week ending January 12 (220,000 expected, 216,000 prior); Continuing Claims, week ending January 5, (1.722 million prior);
Friday: Industrial Production month-on-month, December (+0.2% expected, +0.6% prior); Capacity Utilization, December (78.5% expected, 78.5% prior); University of Michigan Sentiment, January (96.4 expected, 98.3 prior)
Now, here’s what markets reporter Myles Udland is thinking about...
The market is about to get bad news from corporate America
Fourth quarter earnings season is upon us. In the week ahead, earnings from major U.S. banks for the final quarter of the year will begin rolling in with key reports also expected from across industries.
But if the news we’ve already heard from some big U.S. corporates about the final months of 2018 and the road ahead for the global economy are any indication, the weeks ahead are not going to be encouraging.
In late 2018, FedEx (FDX) gave investors the first major indication of troubles about the global economy, with company management saying its international business had “weakened significantly since we last talked with you during our earnings call in September.” Adding that, “China's economy has weakened due in part to trade disputes.” FedEx cut its outlook for 2019 as a result.
On January 2, Apple (AAPL) shocked markets when it said sales for its holiday quarter would sharply miss expectations. CEO Tim Cook mentioned China 11 times in a letter to investors published, writing in part, “While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China.”
The following day, the Dow dropped 660 points and the Nasdaq fell 3%.
Last week, the S&P 500 finished higher in four out of five sessions, giving investors perhaps some sense of reprieve after the brutal trading that capped 2018. During the week, however, corporate America offered investors a message less in-line with how the market behaved and more in-line with what Apple said the prior week.
Retailers Macy’s (M) and Kohl’s (KSS) both provided disappointing preliminary looks at the holiday period, as did apparel company L Brands (LB). Target (TGT), however, reported same-store sales that topped expectations for the holiday period. Additionally, two major airlines — Delta (DAL) and American Airlines (AAL) — cut their forecasts.
This batch of bad news, however, mostly concerned the U.S. economy. In the earnings season ahead, Apple’s warning about the Chinese economy seems likely to be the most common source of disappointing results.
And this coming week, industrial coatings giants PPG (PPG) is set to report results. And though PPG’s earnings report may often go unnoticed by the broader market, the company back flagged a number of concerns about the global economy back in October that we urged investors to note at the time.
Because although Fed policy and the economic situation in the U.S. is part of the basket of potential worries for investors, nothing hurts markets more than the trade war.
Overall, the fourth quarter is still shaping up to be fairly robust for corporate profits, with fourth quarter earnings reports from S&P 500 members so far indicating earnings growth north of 10% for the final quarter of the year. Markets, however, are more interested in what will happen to earnings growth than what has.
And while the stock market decline we saw during the final months of 2018 was certainly in anticipation of some negative news for companies about 2019, the weeks ahead will reveal just how much disappointment investors are ready to endure as we begin a new phase for the global economy.