Get ready for an awful earnings season

Brace yourself: According to estimates compiled by FactSet, analysts predict that earnings for the S&P 500 plummeted nearly 45%, which would function as biggest drop since a 69% plunge during the depths of the Great Recession in the fourth quarter of 2008. Revenues are required to have fallen more than 10%. Retailers, energy companies and industrial firms likely reported the biggest declines in sales and profit.

Financial firms take center stage this week. JPMorgan Chase (JPM), Wells Fargo (WFC), Goldman Sachs (GS), Bank of America (BAC) and BlackRock (BLK) are only a few of the big banks and asset managers that will post their latest results.

“Now that we are getting through the first full quarter of Covid-19 lockdowns … the effects of the pandemic and resulting loss of economic activity are starting to show an impact,” Mark Doctoroff, managing director and world wide co-head of the finance institutions group for MUFG, said in an email to CNN Business.

Doctoroff said investors will soon be keeping an in depth eye on loan quality — particularly after a recent spate of high-profile corporate bankruptcies. Consumers may have struggled to make auto and bank card payments aswell, even as many banks have offered mortgage forbearance programs.

But Doctoroff added that there might be some bright spots to bank earnings. Profits from trading desks could be robust, as a result of the surge in currency markets volatility. Financial firms could also post lasting results from their debt underwriting businesses. Companies have been rushing to issue new bonds as interest levels remain near zero.

Banks won’t be the sole companies in the earnings spotlight. Pepsi, Delta, Netflix and Dow components Johnson & Johnson (JNJ) and UnitedHealth (UNH) are also as a result of report their latest results.
It seems unlikely that lots of of these firms will provide much in the way of financial guidance as a result of uncertain nature of the economy. For what it’s worth, analysts expect the profit picture to improve since the year progresses. And analysts now predict a big rebound next year, with profits expected to rise 12% in the first quarter and not quite 30% for all of 2021.

Hopes for a rapid, pronounced V-shaped recovery in earnings have been one of the most significant reasons why the entire market has rebounded so quickly from its March lows.

The S&P 500 has become down just one.4% in 2010. It’s possible that the bear market is already over even though the entire economy remains weak and there are worries about yet another surge of Covid-19 cases in the United States. But the Federal Reserve has helped fuel expectations of a comeback using its trillions of dollars of loan programs.

“What you are looking at over the next 12 months is still a moderate recovery,” said Erik Knutzen, chief investment officer of multi-asset for Neuberger Berman, adding that there surely is a “titanic struggle” in the markets between bears emphasizing weak fundamentals and bulls who have expectations for more stimulus.

Why Wall Street may be turning on US stocks

Is it time to look for stock buys beyond your United States?

It’s a question investors are asking more and more because they ponder the length of time the massive run-up in US shares can carry on.

The numbers: The S&P 500 has risen 42% since its low point on March 23. Europe’s Stoxx 600 index has gained 31% since its March low.

But Wall Street strategists are increasingly considering European shares more favorably, noting the potency of the region’s recovery from Covid-19 and seeing opportunities to tap value.

Last week, BlackRock downgraded US equities to a “neutral” rating, warning that a surge in coronavirus cases could hit the recovery just like support for more government stimulus starts to wane. Its strategists said they now favor European shares, citing robust public health measures and a “ramped-up” policy response.

They’re perhaps not the only ones. On a current call with reporters, Evan Brown, head of multi-asset allocation strategy at UBS, praised German Chancellor Angela Merkel for quickly moving to roll out fiscal stimulus measures. There’s plenty of room for Europe to outperform, that he said.

The counterargument: The massive rebound in US stocks has been driven by surging shares in companies like Apple, Amazon, Microsoft and Alphabet, which helped push the Nasdaq toward a number of all-time highs last week. There’s no reason to think these businesses will falter soon.

Brian Belski, chief investment strategist at BMO Capital Markets, said Friday that he believes US tech stocks will keep outperforming on the next 12 to 18 months given expectations for longer-term growth. But that he told customers that selectivity may be increasingly important, and encouraged them to look beyond the traditional Big Tech names.

Up next

Monday: PepsiCo (PEP) earnings
Tuesday: US inflation data; UK balance of trade; Germany economic sentiment; Citigroup (C), Delta Air Lines (DAL), JPMorgan Chase (JPM) and Wells Fargo (WFC) earnings
Wednesday: US industrial production; Goldman Sachs (GS) and UnitedHealth (UNH) earnings
Thursday: China GDP; US initial unemployment claims and retail sales; Bank of America (BAC), Charles Schwab (SCHW), Honeywell (HON), Johnson & Johnson (JNJ), Morgan Stanley (MS), Truist (TFC) and Netflix (NFLX) earnings
Friday: US housing starts and building permits; BlackRock (BLK) earnings