Stocks next week: corporate earnings don’t look great. But the drought may be over soon

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Big sofas JPMorgan Chase (JPM), Wells Fargo (WFC) and Citigroup (C.) reported results Friday showing there are still concerns about the impact of the pandemic on consumer and small business behavior. Delta (FROM) also reported a record loss last week when the coronavirus ground journey came to a halt.

According to estimates by FactSet Research, companies in the S&P 500 are expected to report that their earnings were down about 7% in the last three months of 2020 from the fourth quarter of the previous year. However, that should be the end of the income drought.

FactSet senior earnings analyst John Butters told CNN Business that S&P 500 earnings should recover in the first quarter, with analysts predicting a nearly 17% year-over-year increase in the first quarter and an increase of more than 46% in the second quarter . For the full year, Butters said earnings should be up more than 22%.

Of course, companies will face relatively easy comparisons to last spring, given that much of the US economy will essentially shut down for several months from March. That’s one of the reasons stocks have rallied back to near record highs.

But the rally may be justified, especially if vaccinations and incentives lead to a faster return to normal.

Lindsey Bell, chief investment strategist at Ally Invest, said in a report that “concerns about valuations could be exaggerated.”

“There is also a good chance that Wall Street will underestimate earnings growth in 2021. Earnings expectations for this year continue to rise,” she added.

Many companies tightened their belts during the pandemic, cutting costs to maintain profit margins. That means any incremental revenue growth will have a much greater impact on future earnings.

“The very strong margin performance during the pandemic bodes well for earnings growth in the coming years as sales growth resumes,” David Lefkowitz and Matthew Tormey, equity strategists at UBS Global Wealth Management, said in a report.

With that in mind, investors will keep an eye on the forecasts of major companies when they report results next week. (US markets are closed Monday for Martin Luther King Jr. Day.)

Several other large banks, in particular bank of America (BAC), Goldman Sachs (GS) and Morgan Stanley (MRS), are scheduled to report. Also on tap? Income from Netflix (NFLX), UnitedHealth (UNH), Procter & Gamble (PG) and United Airlines (UAL).

Two tech giants of the Dow who have been making major staff relocations lately will also report their latest earnings.

IBM (IBM), which recently hired former Trump economic adviser and ex-Goldman Sachs chief operating officer Gary Cohn as vice chairman, reports that the company will split off much of its older businesses to focus on its cloud operations.
And a struggling chip company Intel (INTC), which announced that CEO Bob Swan would step down after just two years at the helm, is likely to say more in its earnings report on how to get it back on track.

Alibaba faces an ‘existential crisis’

This year could be the most consistent for Alibaba (BABA) since its founding two decades ago, my CNN Business colleague Jill Disis reports.

China’s most famous technology company faces numerous challenges at home and abroad that threaten to change it forever. The Chinese authorities are investigating the company on antitrust grounds, while also urging its sprawling financial partner, Ant Group, to review its operations.

To make matters worse, the company’s figurehead – co-founder and former chairman and CEO Jack Ma – has been out of public view for months.

The other threat is Washington. Although the Trump administration has rejected a proposal to ban US investments in Alibaba and two other prominent Chinese technology companies, tensions between the US and China are unlikely to dissipate anytime soon.

It could all be a very tough 2021 for Alibaba.

“Alibaba, like all other major Chinese techies, is in [an] existential crisis, ”said Alex Capri, a research fellow at the Hinrich Foundation and a visiting senior fellow at the National University of Singapore.

Next one

Monday: US markets closed

Tuesday: Bank of America, Goldman Sachs, State Street and Netflix earnings

Wednesday: BNY Mellon, Morgan Stanley, Procter & Gamble, UnitedHealth and Alcoa earnings; EIA report on crude stocks

Thursday: Baker Hughes, Truist, Union Pacific, IBM and Intel earnings; ECB decision; Initial unemployment claims in the US.

Friday: Ally Financial and Schlumberger earnings; Sell ​​existing homes in the US

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