The US second quarter earnings season kicks off this week without its usual lead company in Alcoa, which is now two companies with different reporting dates and not as important an indicator for US and global manufacturing (and commodities).
Instead a trio of big US banks will be leading the charge. Investors will watch to see how JPMorgan, Wells Fargo and Citigroup performed in the first quarter when the trio report their first quarter results on Thursday.
A couple of other big companies also due to report quarterlies this week – Delta (which will give us a head up on how the airline industry is holding up after the rise in oil and fuel prices and the impact of President Trump’s attempted travel banks), and supermarkets chain, Albertson’s, which will give us a glimpse of how the core food sector is travelling amid the increasingly challenging conditions for all parts of retailing.
Shares in financial stocks and banks in particular, had rallied after US president Donald Trump won the election in November, on hopes that his stimulus plans would see the Federal Reserve accelerate its rate hikes, which would benefit bank net interest margins. But that started running out of puff last month.
As well there were (and still are) hopes that he would take a softer stand on regulation.
But that rally has lost some steam in recent weeks on increasing concerns about Mr Trump’s ability to deliver on his campaign promises after his healthcare reform bill was wrecked by a far-right group within his own party.
Banks though elsewhere, such as Australia, continue to do well and the Aussie market has benefited as solid rises by the big four have added to the impact of the continuing commodities boomlet (which should see US resources and energy stocks drive the second quarter earnings charge in the next six weeks).
Reuters says that the financial sector is projected to post a 15.4% profit gain, second only to energy among S&P sectors.
Energy companies, which carried most of the losses that extended an S&P 500 earnings recession until the second quarter of last year, “are expected to do most of the heavy lifting this quarterly season with a whopping 600% increase,” according to Reuters.
For the entire S&P 500, analysts are projecting earnings up 10.1% compared with a year ago, which would be the first double-digit increase since the third quarter of 2014, according to Thomson Reuters data.
Excluding the sugar hit from the energy sector, S&P 500 earnings are expected to be up 6.1%.
Revenue is expected to have jumped 7%, the most since 2011, which should help compensate for higher wage and other costs facing companies, US analysts told Reuters.
FactSet (https://insight.factset.com/earningsinsight_04.07.17?utm_source=hs_email&utm_medium=email&utm_content=50237441&_hsenc=p2ANqtz-8N2dahWYrHlUG5pcgHejNZyBjuDvOFwrEyVaTbsdWoPMzLprYzt1AJw0TMaWkIjSHSljX7nnAlPyEdtMac5vy-URy5NA&_hsmi=50237441) also sees a strong reporting season ahead:
"As of today, the S&P 500 is expected to report earnings growth of 8.9% for the first quarter. Based on the average change in earnings growth due to companies reporting actual earnings above estimated earnings, it is likely the index will report double-digit earnings growth for the first quarter,“ FactSet said.
"Over the past five years on average, actual earnings reported by S&P 500 companies have exceeded estimated earnings by 4.1%. During this same period, 68% of companies in the S&P 500 have reported actual EPS above the mean EPS estimates on average.
"As a result, from the end of the quarter through the end of the earnings season, the earnings growth rate has typically increased by 2.9 percentage points on average (over the past five years) due to the number and magnitude of upside earnings surprises.
"If this average increase is applied to the estimated earnings growth rate at the end of Q1 (March 31) of 9.1%, the actual earnings growth rate for the quarter would be 12.0% (9.1% + 2.9% = 12.0%). If the index does report growth of 12.0% in earnings for Q1 2017, it will mark the highest earnings growth reported by the S&P 500 since Q3 2011 (16.7%),” FactSet forecast.
