The fourth quarter earnings season is finally here. And one way or another, all of the concerns investors and analysts have had regarding a slowing global economy, impact of the trade war and the effect of rising interest rates on corporate profits will be revealed — if not within the numbers themselves, certainly with the fiscal 2019 guidance that will be issued by companies.
Ask most analysts what has been the biggest drag on the stock market over the past three months and you’ll likely draw several answers. But if you ask them to give you the top three reasons for the obvious lack of confidence in stocks and you’re certain to find the protracted dispute on tariffs between the U.S. and China on their list. And it’s for good reason. Two days worth of negotiations between two economic superpowers has Wall Street seemingly more optimistic about a possible agreement.
China's Commerce Ministry, in a Thursday morning statement, said the just-concluded round of trade talks with the U.S. were extensive and established a foundation for the resolution of each others' concerns. Accordingly, all three major indexes are up so far in 2019, despite the fact that the U.S. government has been closed for business — albeit partially. As of Saturday, the partial shutdown reached in its 22nd day, marking the longest on record. Nevertheless, stocks on Friday ended mostly flat, capping a week that helped to push both the Dow and S&P 500 out of correction territory.
For the week, the Dow netted a gain of 2.4%, the S&P 500 was 2.5% higher, while the Nasdaq delivered a weekly return of 3.5%. But investors shouldn’t expect too much too soon. It has taken the better part of four months for stocks to reach what analysts now call “fair value.” Another faction of investors still worry we are in “bear market territory.” This means rallies could be short-lived. And with the fourth-quarter earnings season in full swing next week, banks, diversified financials and insurance companies are names to keep an eye on.
Citigroup (C) - Reports before the open, Monday, Jan. 14
Wall Street expects Citigroup to earn $1.55 per share on revenue of $17.59 billion. This compares to the year-ago quarter when earnings came to $1.28 per share on revenue of $17.25 billion.
What to Watch: Over the last five quarters, Citigroup has beaten consensus EPS estimates five times, suggesting a strong execution track record. But when looking deeper, there are signs of weakness in various aspects of the business, namely the consumer segment, which last quarter arrived softer than analysts expected. And not only has non-interest income faced some challenges, the fixed income side of the business has been under pressure. On the bright side, diligent costs controls and an attention to the bottom line keeps EPS rising.
JPMorgan Chase (JPM) - Reports before the open, Tuesday, Jan. 15
Wall Street expects JPMorgan to earn $2.21 per share on revenue of $26.9 billion. This compares to the year-ago quarter when earnings came to $1.76 per share on revenue of $25.45 billion.
What to Watch: Although the banking sector has been brutalized, JPM stock has been one of the better performers — on a relative basis, down just 6% in three months, compared to an 8% decline in Financial Select Sector SPDR Fund (XLF). Investors have not only applauded not only JPM’s executions, but also its plans to take on the discount brokers with its new commission-free arrangement. On Tuesday analysts will want some confirmation that these assumptions, which would differentiate JPM from other large money-center banks are realistic.
Wells Fargo (WFC) - Reports before the open, Tuesday, Jan. 15
Wall Street expects Wells Fargo to earn $1.19 per share on revenue of $21.75 billion. This compares to the year-ago quarter when earnings came to 97 cents per share on revenue of $22.05 billion.
What to Watch: Will 2019 be the year Wells Fargo puts its troubled history in the rear view? And as it moves beyond these legacy issues, what will the “new normal” look like — particularly in terms of profitability? From a valuation perspective and with interest rates now on the rise, Wells Fargo stock looks enticing after falling 13.5% in six months. Combined with its above average dividend, share buyback program, Wells Fargo stock is one of several to keep an eye on in the banking sector.
Bank of America (BAC) - Reports before the open, Wednesday, Jan. 16
Wall Street expects BAC to earn 63 cents per share on revenue of $22.45 billion. This compares to the year-ago quarter when earning were 48 cents per share on revenue of $21.59 billion.
What to Watch: Bank of America has beaten earnings estimates in nine straight quarters. But investors, who have seen their holdings shed 13% last month, versus a 9% drop in the S&P 500, are hoping for much stronger results Wednesday. Specifically, with loan and deposit growth being among the major objectives investors are hoping will impress Wall Street. Meanwhile, analysts will want to see to what extent can other parts of the business such as investment banking, support top-line growth and sustainable profits.
Alcoa (AA) - Reports after the close, Wednesday, Jan. 16
Wall Street expects Alcoa to earn 62 cents per share on revenue of $3.35 billion. This compares to the year-ago quarter when earning were $1.04 per share on $3.17 billion in revenue.
What to Watch: Shares of the aluminum giant have been one of the bright spots in the materials sector, rising almost 8%, helping drive the SPDR S&P Metals & Mining ETF (XME) to a year-to-date gain of 8.55%. The rise in metal stocks have been driven by optimism that the aforementioned US-China trade war may soon end. And given that China is world’s largest consumer of metals, any lifting of tariffs could further boost materials stocks, which have taken it pretty hard over the past three months.
Netflix (NFLX) - Reports after the close, Thursday, Jan. 17
Wall Street expects Netflix to earn 24 cents per share on revenue of $4.21 billion. This compares to the year-ago quarter when earning were 41 cents per share on $3.29 billion in revenue.
What to Watch: As is often the case, Neflix’s Q4 results will be the first among its FAANG peers — Facebook (FB), Amazon (AMZN), Apple (AAPL) and Google (GOOG , GOOGL), which have all suffered during the recent market correction. For Netflix, however, the movie streaming giant will look to bounce back after Q3 subscriber additions for both domestic and international fell short of Wall Street expectations. Netflix shares fell sharply as a result. But analysts remain positive that the Q3 disappointment was does not deter from the long-term growth story that remains intact.