An Earnings Season Like No Other Is About to Begin

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Earnings season is about to start, with the coronavirus pandemic causing one of the most uncertain backdrops ever.

Analysts are looking for S&P 500 earnings to decline by 43-44 percent, according to Reuters and Factset. The energy sector is expected to have the sharpest contraction (-155 percent). Utilities are forecast to shrink the least (-2 percent).

Usually numbers like that would be devastating to investor sentiment. But this earnings season is different because so much depends on the public-health situation. If the pandemic eases and businesses can reopen, confidence may continue to grow. But if it worsens, even positive results will probably be dismissed.

That’s especially true for banks, which kick off the reporting this week. Last quarter, they sacrificed profits by setting aside tens of billions of dollars to cover bad loans. They might provision further against losses. But if things improve, those old reserves could flow right back onto their bottom lines.

Netflix and Tesla Earnings

Netflix (NFLX) is the other big name this week, reporting Thursday afternoon. The streaming-video giant shot to new record highs last week after Goldman Sachs hiked its price target from $540 to $670. The bank expects 12.5 million new subscribers and free cash flow approaching $100 million. That’s a big deal for a company that notoriously burns cash to produce content.

Netlfix (NFLX), daily chart, with 50- and 200-day moving averages.
Netlfix (NFLX), daily chart, with 50- and 200-day moving averages.

Next week brings Tesla (TSLA), Microsoft (MSFT) and possibly Amazon.com (AMZN). All three of the technology companies recently hit new highs because Investors view their businesses as immune to coronavirus or benefiting from it.

Tesla, Netflix, Apple, Facebook and Amazon.com are some of the most active stocks in the options market. Click here for Market Actions’ guide to options trading strategies for earnings season.

Apple and Facebook Earnings

Apple (AAPL) is confirmed for Thursday, July 30, after the closing bell. The market’s most valuable company is in the process of evolving from trendy gadgets to indispensable personal services. That could make numbers like iPhones sold less important than details on usage of its app store.

Facebook (FB) issues its numbers on July 29. The social-media giant jumped after its last report. It broke out to new highs in May on optimism about its Shops small-business offering. But then an advertiser boycott dragged it lower.

Attention next turns to health-care and media companies. As usual, there’s a final cluster of reports from retailers like Wal-Mart Stores (WMT) and Home Depot (HD) in mid-August.

Finally, remember that analyst activity picks up around earnings reports. That makes it a good time to learn more about companies and Wall Street’s opinions on their futures.

Here’s a week-by-week guide of what to expect in coming weeks:

WeekMajor Highlights
July 13-17Banks & Financials: JPMorgan Chase (JPM), Bank of America (BAC), Citigroup (C), Goldman Sachs (GS), Morgan Stanley (MS)
Digital Media: Netflix (NFLX)
S&P 500 members reporting: ~23
July 20-24Tech: Tesla (TSLA), Microsoft (MSFT), Amazon.com (AMZN)*, Twitter (TWTR), Intel (INTC), Alphabet (GOOGL)*, Snap (SNAP)
S&P 500 members reporting: ~110
July 27-31Tech & Digital Media: Apple (AAPL), Facebook (FB), Advanced Micro Devices (AMD)*, Qualcomm (QCOM), Spotify (SPOT), PayPal (PYPL)
Industrial: General Electric (GE), Caterpillar (CAT), 3M (MMM)
Consumer: Ford Motor (F), Starbucks (SBUX), General Motors (GM), McDonald’s (MCD), Procter & Gamble (PG), Altria (MO)
S&P 500 members reporting: ~183
Other Events: Fed meeting, Nonfarm Payrolls
Aug. 3-7Media & Videogames: Activision Blizzard (ATVI), Walt Disney (DIS), ViacomCBS (VIAC), Roku (ROKU)*
S&P 500 members reporting: ~90
Aug. 10-14Technology: Nvidia (NVDA)*, Alibaba (BABA)*, Cisco Systems (CSCO)*
Retail: Wal-Mart Stores (WMT)
S&P 500 members reporting: ~10

Note: Stocks with unconfirmed timing is marked with an asterisk(*).

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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.