As investors look to a fresh week of corporate earnings announcements, figures published last week revealed that 72 percent of S&P 500 companies beat analysts’ expectations in terms of profits.
“For Q4 2019 (with 9% of the companies in the S&P 500 reporting actual results), 72% of S&P 500 companies have reported a positive EPS surprise and 63% of S&P 500 companies have reported a positive revenue surprise,” wrote John Butters, senior earnings analyst at FactSet, a financial data services company.
The S&P 500 has gotten off to a strong start in January, up 3 percent this year, fueled by a truce in the U.S.–China trade war, low interest rates, and signs that the economy remains healthy.
Wall Street climbed to record highs on Dec. 17, with major indexes turning in their strongest weekly gains since August, after strong U.S. housing data fueled optimism.
Housing starts jumped to a seasonally adjusted annual rate of 1.608 million units last month, the highest level since December 2006. The percentage gain was the largest since October 2016.
All Eyes on Another Week of Corporate Earnings
Investors are sure to follow corporate earnings closely in the coming week, as the earnings figures so far are based on less than 10 percent of companies reporting. And a year-over-year comparison of fourth-quarter earnings shows a drop in profit.“For Q4 2019, the blended earnings decline for the S&P 500 is minus 2.1 percent,” Butters wrote. “If minus 2.1 is the actual decline for the quarter, it will mark the first time the index has reported four straight quarters of year-over-year earnings declines since Q3 2015 through Q2 2016.”
Despite near-zero corporate earnings growth last year, stock markets have performed well, with many investors anticipating a turnaround in profits in 2020 as global growth stabilizes and trade tensions diffuse.
“The market rally indicates that investors expect higher earnings growth again in 2020,” Alexander Voigt, founder and CEO at daytradingz.com, told The Epoch Times in an email.
“The China trade deal and presidential elections are the main influential factors. I expect a stronger outlook during the current earnings release period and a subsequent higher earnings growth for 1Q20 and 2Q20.”
Others expect lackluster figures.
“Analysts should curb their earnings enthusiasm,” Max Gokhman, head of asset allocation at Pacific Life Fund Advisors, told The Epoch Times in an email. “A dearth of capex [capital expenditures] in 2019 means that earnings targets will be hard to hit this year.”
Banks faced a dynamic operating environment in 2019 after the Federal Reserve cut interest rates three times. Higher rates tend to benefit the bottom lines of deposit-taking financial institutions because they widen spreads between the interest that banks earn from loans and the interest they pay for deposits. Lower rates can have an upside, too, however, as they tend to increase demand from consumers looking to take advantage of cheaper loans.
“Earning expectations for the banks have been elevated, but for the most part, they have delivered,” said Bob Lang, founder and chief options strategist at Explosive Options.
Lang added that he expects many banks to continue their 2019 posture of increasing dividends and stock buybacks.
“This should spill over into higher prices for stocks in 2020 as banks deliver more capital back to investors,” he told The Epoch Times.
IBM, Netflix, and United Airlines are all scheduled to report quarterly earnings on Jan. 21.
