Earnings-Reporting Winds Set To Swirl

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There was ample movement in stock prices last week, which produced the first losing week for the Dow Jones Industrial Average and S&P 500 this year. The Nasdaq Composite, however, kept its winning streak alive thanks to Friday’s Netflix-powered surge.

This week should also produce its fair share of movement, as it is a week that will be littered with earnings reports from nearly 100 S&P 500 companies and a slate of key economic data that includes the Advance Q4 GDP Report (Thursday), the December New Home Sales Report (Thursday), and the December Personal Income and Spending Report (Friday), which includes the Fed’s preferred inflation gauge in the form of the core-PCE Price Index.

There are 11 Dow components that will post results this week: 3M (MMM), Johnson & Johnson (JNJ), Travelers (TRV), Verizon (VZ), Microsoft (MSFT), Boeing (BA), IBM (IBM), Dow, Inc. (DOW), Intel (INTC), American Express (AXP), and Chevron (CVX).

These stocks will command added attention along with other luminaries that include General Electric (GE), Halliburton (HAL), Union Pacific (UNP), Lockheed Martin (LMT), Capital One (COF), Comcast (CMCSA), Freeport-McMoRan (FCX), Lam Research (LRCX), Mastercard (MA), AT&T (T), Blackstone (BX), and Colgate-Palmolive (CL).

Currently, there isn’t a lot of conviction in the futures trade, but what conviction there is favors the bulls.

The S&P 500 futures are up four points and are trading 0.1% above fair value, the Nasdaq 100 futures are up nine points and are trading fractionally above fair value, and the Dow Jones Industrial Average futures are up 67 points and are trading 0.2% above fair value.

Dow component and tech heavyweight Salesforce, Inc. (CRM) is helping the bulls plod along. It is up 4.3% following a Wall Street Journal report that Elliott Management has taken a multi-billion dollar stake in the company.

Other components of support so to speak include a report from Reuters that the latest NABE survey of businesses indicated there is a 56% possibility that the U.S. economy is already in, or will be in, a recession in 2023 versus a nearly two-thirds possibility at the time of the last survey, and a Wall Street Journal article by Nick Timiraos that is highlighting the likelihood of the Fed raising rates by 25 basis points at next week’s FOMC meeting and possibly starting to debate when to pause its rate hikes.

Both reports fit the groove of a market that has shown more hope about the possibility of the economy achieving a soft landing and the Fed ending its rate hikes soon.

There has been some hope, too, that further downward revisions to 2023 earnings estimates won’t be as bad as feared. More light will be shed on that front this week, although the latest earnings summary from FactSet indicates that the blended Q4 earnings decline for the S&P 500 has dropped to -4.6% from -3.2% on December 31 with 11% of S&P 500 companies reporting actual results.

For calendar 2023, the earnings growth rate has faded to 4.2% from 4.6% in the prior week. The important thing here is that we are still talking about growth, but even so, valuation headwinds are still blowing with the S&P 500 trading at 17.5x forward twelve-month earnings versus a 10-year average of 17.2x, according to FactSet.

That is partly why companies reporting their results this week can’t blow it with their guidance.

Originally Posted January 23, 2023 – Earnings-reporting winds set to swirl

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