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Earnings Season Shifts to Higher Gear: Global Week Ahead

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In the Global Week Ahead, the latest U.S. earnings season shifts to a higher gear.

Q4 and full-year results come out — from over 40 S&P 500 companies, and more than 90 companies in total.

Key U.S. large cap stocks: Morgan Stanley, Goldman Sachs, BofA, State Street, Netflix, P&G, CSX Corp., Kinder Morgan and Intel.

Forward guidance, as usual, should best inform each stock’s price momentum in 2021.

Next?

Reuters’ five world market themes, reordered for equity traders.

(1) On Wednesday, Biden Is Inaugurated

On Wednesday, Joe Biden will be inaugurated as the 46th president of the United States, taking over the leadership of a country racked by COVID-19, deep socio-economic divisions and facing challenges to its global leadership role.

Biden has proposed $1.9 trillion in stimulus with a commitment for $1,400 stimulus checks. Markets have cheered his win but are watching for clarity on spending and tackling the pandemic.

The S&P 500 has risen in the first 100 calendar days of eight out of the last 10 presidential terms, but Biden’s first 100 days may be more fraught than those of his predecessors. He needs to stimulate the economy quickly, but the slender Democrat majority in Congress means the size and timing of the package remain uncertain.

(2) Europe Will Show Us Some IPOs This Week

In late 2020, New York bustled with initial public offerings from the likes of Airbnb and Doordash in eye-popping valuations and soaring values on their first trading day.

Now Europe is playing catch-up, with several IPOs already off the blocks in January. Bootmaker Dr. Martens kicked off proceedings, followed by online card retailer Moonpig, Poland’s InPost and Germany’s Auto1.

And as 2020 earnings emerge and the equity rally continues, more companies are seen making a bid for listings; among them are Deliveroo, pet care firm IVC Evidensia and German online fashion retailer About You.

(3) On Thursday, the European Central Bank (ECB) Meets

The European Central Bank meets on Thursday. It unleashed extra stimulus a month ago but the new COVID-19 strain and a relatively slow vaccination pace are again clouding the economic outlook.

Cause for concern? Not so, comments from Christine Lagarde suggest. The ECB chief predicts recovery as COVID subsides, seeing the glass as half-full, not half-empty. Germany’s economy too is cause for optimism, shrinking by a less-than-expected 5% in 2020.

But prolonged lockdowns will hurt. Against this backdrop, markets will want the ECB to signal its commitment to using the full firepower of its 1.85 trillion-euro ($2.24 trillion) emergency bond-buying scheme — something on which policymakers appear to be split.

(4) On Friday, January Manufacturing PMIs May Be Somber

Economies were meant to be turning the corner in January but when “flash” business activity readings from the Eurozone, the United States, Japan and Britain emerge on Friday — the first PMIs of 2021 — they may be more somber than anticipated.

While economic rebound bets still stand, activity curbs and a surging COVID-19 caseload are casting doubt over forecasts.

Having bounced off March troughs, global PMIs have seesawed of late just above 50. Economists expect IHS Markit’s flash Purchasing Managers’ Index (PMI) to show Eurozone activity shrinking further after December’s contraction. PMI readings above 50 indicate growth and U.S. and U.K. surveys showed strong expansion last month, but the big question is whether that continues.

We get a snapshot from China, too. Data shows +2.3% economic expansion last year while December industrial and retail figures provide a more up-to-date picture of growth.

(5) Germany Will Pick Merkel’s Successor

After 15 years at the helm of Europe’s largest economy, German Chancellor Angela Merkel bows out this year. On Saturday, the Christian Democratic Union picked a new leader [centrist Armin Laschet] who will likely become chancellor after September elections.

Battling it out was centrist Armin Laschet, arch-conservative Friedrich Merz and foreign policy expert Norbert Roettgen. But Markus Soeder of the CDU’s Bavarian sister party, the Christian Social Union, might well upset the race [they didn’t!].

For markets, the candidates’ attitudes to fiscal policy is key. Merkel, known affectionately as ‘Mutti,’ or mother, jettisoned her party’s antagonism to deficits. She spent more and accepted moving toward joint debt to save the Eurozone.

Merkel’s successor probably won’t backtrack completely, but concerns linger nonetheless about how quickly Germany might pull back to fiscal orthodoxy under a new leader.

Top Zacks #1 Rank (STRONG BUY) Stocks

With COVID, the economic indicators for future homebuilding, and remodeling, became rosy in 2020.

The industry is bullish on 2021, too.

The Chief Economist of housing data expert Zonda is calling for a +12.6% increase in single-family U.S. home starts in 2021 over 2020, hitting a 1,075,000 at a seasonally adjusted, annualized rate.

Outperformance of starts over sales should be partly due to the backlog builders are entering 2021 with.

(1) D.R. Horton (DHI - Free Report) : Based in Texas, this is a U.S. single-family homebuilder, for both entry-level and move-up markets. Shares price at $69 now, making for a $25.5B market cap stock. I see a Zacks Value score of B, a Zacks Growth score of B, and a Zacks Momentum score of B.

(2) Lennar Corp. (LEN - Free Report) : Based in Miami, this is another U.S. single-family attached and detached homebuilder. Shares price at $77 each now, making for a $23.9B market cap stock. I see a Zacks Value score of A, a Zacks Growth score of A, and a Zacks Momentum score of D.

(3) Weyerhauser (WY - Free Report) : Based in Washington state, this is the veteran Wood Building Products stock. Shares price at $32.50 each, making for a market cap of $24.2B. I see a Zacks Value score of F, a Zacks Growth score of C, and a Zacks Momentum score of C.

That housing industry expert asked division presidents of homebuilding companies across the country what their biggest concerns are, going forward.

Their top three answers (in order) are—
 

  • - Gapping out/running out of lots
  • - Land prices, and
  • - New home affordability

A softwood lumber benchmark for 2 x 4’s is up +135% over the last year.

Key Global Macro

Eight central banks weigh in with fresh policy decisions and in several instances fresh forecasts.

Expect none of them to meaningfully alter their policies.

On Monday, Mainland China macro data lands. Q4 GDP growth was expected to be up 6.1% and surprised to +6.5%; industrial production was up 7.1% from the expected +6.9%.

On Tuesday, after the latest shutdowns, the Euro Area ZEW survey for economic sentiment in December should fall to 45.5 from 54.4.

The People’s Bank of China is forecast to leave its benchmark 1-year and 5-year Loan Prime Rates unchanged at 3.85% and 4.65% respectively on Tuesday evening (ET).

On Wednesday, the U.S. National Association of Home Builders (NAHB) Housing Market Index should be high but flat at 86.

On Thursday, there is an E.U. leader’s summit.

The ECB is expected to leave stimulus programs unchanged, after having just expanded them at the December 10th meeting.

There will be a Bank of Japan (BoJ) monetary policy statement and rate decision. -0.1% is the consensus, once again. They will stay put.

On Friday, lots of Markit manufacturing PMIs hit the tape. The Euro area for January should be 55. The U.S.A. should be 56.5. Goods producers are doing fine during the pandemic. Services? Not so much.

Conclusion

I close, excerpting from Zacks Research Director Sheraz Mian’s Q4 Earnings Update—

 

  • - Sheraz expects total Q4 earnings for S&P 500 companies to be down -7.8% from the same period last year, on +0.3% higher revenues
  • - Sheraz expects 9 of the 16 Zacks sectors to earn less than a year earlier

Entering this week, we have Q4 results from 26 S&P 500 firms -- 5.2% of the total—
 

  • - Total earnings (or aggregate net income) for those 26 companies went up +7.6% from the same period last year, on -1.9% lower revenues


For Finance, we have Q4 results from 20.6% of the sector’s total market capitalization—
 

  • - Total earnings for these big Finance firms are up +14.4% from the same period last year, on -3.4% lower revenues


A healthy proportion of the remaining big U.S. banks report Q4 results in the Global Week Ahead.

What do flat nominal revenue growth results, for large-sized U.S. based firms, tell us?

Their real revenue growth was around -2.0% over that period.

We know U.S. real GDP growth went down -3% to -4% from COVID, from Q4 of 2019 to Q4 of 2020.

So, it must be: smaller firms bore more of that blow.

Happy Trading and Investing!

Regards,

John Blank

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