October 4, 2022

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Wall Street Weekend stakes are high as major companies highlight their big earnings week

Wall Street Weekend stakes are high as major companies highlight their big earnings week

People on Wall Street outside the New York Stock Exchange (NYSE) in New York City, US, March 19, 2021. REUTERS/Brendan McDermid/File Photo

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NEW YORK (Reuters) – Investors are hoping for a flood of U.S. quarterly reports next week, including those from huge growth giants, to confirm strong earnings expectations for U.S. companies and bolster the stock case after a tough start to the year. .

Nearly 180 companies in the S&P 500, equal to nearly half of the benchmark’s market capitalization, are due to report results next week. It includes the four largest US companies by market capitalization: Apple (AAPL.O)Microsoft (MSFT.O)Amazon (AMZN.O) The Google Alphabet Alphabet (GOOGL.O).

The latest round of earnings comes amid a hawkish backdrop from the Federal Reserve and a rapid rise in bond yields that has raised concern about whether policymakers will hurt the economy as they battle the worst inflation in nearly four decades. The S&P 500 fell in April and is down 10.4% so far this year after a sharp sell-off on Friday. Read more

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With the impact of monetary policy on stocks, optimistic investors are relying on a strong corporate outlook to support the markets, increasing pressure on companies to report strong final earnings results and expectations. It is estimated that S&P 500 companies will increase their earnings by 9% this year, according to Refinitiv IBES.

“Probably the strongest argument you can make to own the stock at this point is that corporate earnings are still very strong,” said Charlie Ryan, portfolio manager at Evercore Wealth Management. “Any deterioration in corporate earnings growth and the pace of that would scare the market.”

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So far, investors have been quick to penalize company stocks with disappointing results, especially those with exorbitant valuations. One of the recent victims was Netflix (NFLX.O)whose shares fell about 35% in one session after the broadcasting giant reported its first subscriber drop in a decade.

Although stocks are down year-to-date, the S&P 500 is still trading around 19 times forward earnings estimates, 15.5 times above its long-term average.

“We are in a show environment. I think the next week is important for high-growth tech names, especially highly rated stocks,” said Anthony Saglimpin, global market strategist at Ameriprise.

Investors will focus on results from Apple, Microsoft, Amazon and Alphabet, which have a combined market capitalization of about $8 trillion and make up a fifth of the weight of the S&P 500 Index. All of those massive stocks have fallen this year, with Apple down nearly 9%, Amazon 13.4% and Alphabet 17.4. % and Microsoft 18.5%.

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Earnings forecasts for these companies are weak for the quarter ending in March. Microsoft is expected to have increased adjusted earnings per share 12% from the same period last year, Apple by 2%, while Alphabet reported a decline of 0.7% and Amazon reported a decrease of 49%, according to Refinitiv data. Overall, the S&P 500 companies are expected to increase their quarterly earnings by 7.3%.

“Expectations are low, but that doesn’t mean they aren’t important,” said James Ragan, director of wealth management research at DA Davidson. So, it’s hard to imagine that we’d do that without getting better-than-expected profits from the big companies.”

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Aside from the Big Four, results are due next week from a handful of companies including Facebook owner Meta Platforms (FB.O)Visa payment companies (VN) and MasterCard (man)major oil companies, Chevron (CVX.N) and ExxonMobil (XOM.N)and Coca-Cola consumer companies (KO.N) and PepsiCo (PEP.O).

Besides bottom line results and financial outlook, investors will also be looking to see if companies can maintain their profit margins as inflation threatens to raise input costs. JP Morgan said in a note this week that S&P 500 companies will see net income margins fall to around 13% in 2022 from a record 13.4% last year.

Of the 99 Standard & Poor’s 500 companies that have reported so far, 77.8% have posted earnings that are higher than analysts’ expectations, Refinitiv IBES said. That rate is higher than the typical hitting rate of 66% for a quarter since 1994, but lower than the rate of 83% for the past four quarters.

“The stock market … is waiting for this influx of profits. The market owes much to what companies have to say about the second quarter and beyond,” Saglimpin said.

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(Reporting by Louis Krauskopf). Editing by Ira Yosipashvili and Chris Reis

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