After weeks of speeches from the Fed and rising yields driving share prices, corporate earnings will be the focus in the coming week.
The results from Bank of America (BAC) and Goldman Sachs (GS) shed light on how the financial sector is responding to the rising interest rate environment. Meanwhile, Tesla and Netflix will highlight the start of tech earnings.
A retail sales report for September is expected to show modest growth in an otherwise quiet week for economic data.
Recent economic data showed inflation cooling enough for the market to bet the Fed won’t The U.S. government raised interest rates at its November meeting, but stocks are still struggling to find solid footing as rising geopolitical risks and the fallout from higher, longer-term interest rates continue to cloud the picture.
Last week, the Nasdaq (^IXIC) fell nearly 0.2%, while the benchmark S&P 500 (^GSPC) rose nearly 0.5% and the Dow Jones Industrial Average (^DJI) rose about 0.8%. rose.
Inflation data released last week showed price increases cooling beneath the surface. The data gave markets optimism about a rate pause in November, as Fed officials expressed that higher yields could lead to necessary tightening of monetary policy and effectively replace another rate hike.
But combined with a hot September jobs report, there is no broad consensus that the Fed is completely done raising rates.
“Continued strength in the labor market could lead to sustained wage growth and forestall a decline in consumption growth, leading to increased price pressures and above-trend growth,” the Oxford Economics team of economists wrote in a research note on Thursday. “With the Fed committed to returning inflation to its long-term target of 2%, doing so would increase the likelihood of a rate hike this year, extend the duration of restrictive monetary policy and increase the likelihood of a recession in the future.”
The impact of the Federal Reserve’s interest rate hikes on corporate America is expected to once again be the focus of the third quarter earnings season. And in the first reading, the major financial institutions are holding firm as JPMorgan Chase (JPM), Citigroup (C) and Wells Fargo (WFC) all reported higher profits in Friday’s earnings release.
The story goes on
But JPMorgan CEO Jamie Dimon flagged the risks ahead in the company’s earnings release.
“U.S. consumers and businesses remain generally healthy, even as consumers draw down excess cash reserves,” Dimon said, before commenting on how rising geopolitical tensions in the Middle East could further cloud the economic picture.
“The war in Ukraine, exacerbated by last week’s attacks on Israel, could have far-reaching effects on energy and food markets, global trade and geopolitical relations,” Dimon continued. “This could be the most dangerous time the world has seen in decades.”
Next week, Bank of America, Goldman Sachs and Morgan Stanley (MS) will lead the financial sector earnings calendar.
“The disappointing thing is that JPMorgan was the best performer last quarter and will probably be the best performer this quarter as well,” Dave Ellison, manager of Hennessy Financial Funds, told Yahoo Finance live after JPMorgan reported results. “So we’re getting the best bank returns today and the rest won’t be quite as exciting.”
JPMorgan Chase & Co. CEO Jamie Dimon gestures as he speaks during an interview with Portal in Miami, Florida, in February. 8, 2023. (Marco Bello/Portal)
Tesla recently missed Wall Street estimates for third-quarter deliveries, and margins remain a key concern for the electric vehicle maker. Margins have declined throughout 2023 as the company used price cuts to stimulate demand.
Morgan Stanley equity analyst Adam Jonas thinks margins likely fell to 17.5% from 18.2% in the year-ago period. After hosting a “bull-bear lunch” this week, Jonas said Tesla’s earnings numbers were “cautious.”
“Many are wondering whether Tesla can even grow its profits in FY24,” Jonas wrote in an Oct. 11 research note.
He added: “Tesla stock performance post-release will likely be determined by comments on the future outlook and how the consensus might move (up/down/neutral).” [fiscal year] ’24.”
When it comes to Netflix, investors will be looking for details on the company’s recent developments, including rumors of a price increase, new details about the streamer’s approach to password sharing, and the success of its advertising tier.
“We believe pricing changes, slower-than-expected sub-growth, anecdotal consumer controls and viewership data suggest that Netflix has slowed, if not stopped, its password sharing crackdown,” Jefferies equity analyst Andrew Uerkwitz wrote in a research note with a Preview the winnings. “This is likely due to our renewed focus on making timing, content and pricing structures better able to increase borrower retention. We are adjusting our revenue model downward to reflect new subscriber growth.”
In summary: Uerkwitz is “looking for income to provide answers”.
Broadly speaking, the question investors will have to worry about this earnings season will be whether company results can pull stocks out of the recent slump. In its third-quarter reports, The Street forecast a flat profit compared to the same period last year.
Some strategists believe the stronger-than-expected data could lead to better-than-feared earnings. If that’s the case, the next catalyst for stocks could take hold.
“We expect earnings season to be better than feared and the SPX to trade at the upper end of our range (4200-4600),” Wells Fargo equity analyst Christopher Harvey wrote in a note to clients on Friday.
But the “upward trend is hampered by interest rates,” he added.
Weekly calendar
Monday
Economic data: Empire Fed Manufacturing, October (-5 expected, +1.9 so far)
Merits: Charles Schwab (SCHW)
Tuesday
Economic data: National Association of Home Builders Sentiment Index, October (45 expected, 45 prior); Industrial production month-on-month, September (-0.1% expected, +0.4% previous month) Retail sales month-on-month, September (+0.3% expected, 0.6% previous month); Month-on-month retail sales, excluding auto and gasoline, September (+0.1%, previously +0.2%)
Merits: Bank of America (BAC), BNY Mellon (BK), Goldman Sachs (GS), Interactive Brokers Group (IBKR), JB Hunt (JBHT), Lockheed Martin (LMT), Johnson & Johnson (JNJ), Pinnacle Financial Partners (PNFP ). ), United Airlines (UAL)
Wednesday
Economic data: Building permits, September, month-on-month (-5.9% expected, +6.9% previous); Housing starts, September, month-on-month (+8.5% expected, -11.3% previous); MBA Mortgage Applications, Week Ending October 13 (+0.6%, Year-To-Date)
Merits: Netflix (NFLX), Tesla (TSLA), Alcoa (AA), Ally Financial (ALLY), ASML (ASML), Abbott Labs (ABT), Citizens Financial Group (CFG), Discover Financial Services (DFS), Halliburton (HAL) , IBM (IBM), Las Vegas Sands (LVS), Nasdaq (NDAQ), Zions Bancorporation (ZION)
Thursday
Economic data: Initial jobless claims, week ending October 14 (previously 209,000); Philly Fed Business Outlook, October (-6.4 expected, -13.5 previous); Existing Home Sales, September, MoM (-3.5% Expected, -0.7% Previous); Leading index of economic indicators, September (-0.4% expected, so far -0.4%)
Merits: AT&T (T), American Airlines (AAL), Blackstone (BX), Freeport McMoran (FCX), KeyBank (KEY), PPG (PPG), Truist (TFC), TSMC (TSM), Union Pacific (UNP), Western Alliance (WAL), WD-40 (WDFC)
Friday
Economic data: No significant economic publications.
Merits: American Express (AXP), Comerica (CMA), Huntington Bancshares (HBAN)
Josh Schafer is a reporter for Yahoo Finance.
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