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In the Global Week Ahead, 98 S&P 500 member companies report their Q1 earnings.
One can easily imagine — in an epic Q1 for the ages, some industry groups fared better than others:
Think about movie theaters being shut and driving streaming revenues instead. Netflix (out AMC on Tuesday) already doubled revenues the past three years.
United Airlines has cleared the runway for other airlines. Thank you CARES Act.
We generally know what to expect from energy plays. $13 a barrel oil? Crazy!
Positive offsets could come from rapid growth in on-line shopping and delivery.
Among the names: Netflix, AT&T, T-Mobile, Verizon, Delta, Southwest Airlines, Amazon, Coca-Cola, energy plays like Kinder Morgan, Halliburton, Baker Hughes, Visa, Amex, Capital One, Invesco, Eli Lilly, Biogen, Lockheed Martin, Equifax and Intel.
This wave of Q1 earnings releases will be parsed for fresher signals of economic activity — including forward guidance — than tends to be available from conventional macro releases.
Be aware rookies! Traders already looked ahead.
Importantly, the stock market tone to date has shown fleeting interest in bad releases.
Professional traders are now attempting to time the uncertain magnitude of a potential rebound in activity. Q1 earnings reports hold the granular info they need — to do a refined job at picking winners from the losers.
Up next are the usual Reuters’ five world market themes, re-ordered for equity traders.
I put both U.S. and European earnings narratives up front. It remains to be seen if traders really care about anything outside the U.S. listed scene.
(1) U.S. S&P 500 earnings reports heat up.
If big banks were the appetizer for the U.S. corporate reporting season, investors are preparing to dig into the main course.
Around 100 S&P 500 companies are due to post Q1 results in the coming week.
They include Netflix (NFLX - Free Report) and airlines such as Delta (DAL - Free Report) and Southwest (LUV - Free Report) , after major carriers agreed in principle to a $25 billion U.S. rescue package.
Investors are bracing for brutal Q1 earnings as well as for a big profit swoon in 2020 overall. But they will also look for signs of how soon business can get back on track, with Wall Street factoring in a profit rebound in 2021.
(2) European earnings roll in. Does anybody care?
Even the world’s largest financial market regulator, the U.S. Securities and Exchange Commissions, doesn’t care about first-quarter corporate earnings, so why should Europe?
Europe begins reporting results next week with the likes of Credit Suisse , Apple component supplier STMicroelectronics (STM - Free Report) , Sanofi (SNY - Free Report) and Volvo VLVLYall due to report.
The focus is on the second-half and 2021 outlook.
European companies are expected to report a -22% earnings decline in Q1 and -34% drop in Q2, Refinitiv data shows. That would be the sharpest decline in annual profits since at least the global financial crisis.
With the STOXX index down -25% year-to-date, much of that’s already priced in. Those seeking detailed commentary on where companies stand might be disappointed.
So far, ASML Holdings N.V. (ASML - Free Report) and Volkswagen VWAGY have failed to provide outlooks. Given uncertainty surrounding COVID-19 and lockdowns, more companies may follow suit.
(3) Purchasing Manager Indexes (PMIs) get updated across this week.
We’ll soon get a glimpse of how economies fared in April as the full effects of coronavirus lockdowns appeared. And the advance readings of purchasing manager surveys (PMI) are likely to be harsh.
Composite Eurozone PMIs, comprising services and manufacturing, plummeted last month to a record low of 29.7 versus February’s 51.6 — the biggest monthly drop since the survey began in July 1998. The 50-mark separates growth from contraction. What’s more, the difference between final composite PMIs between February and March was 21.876, four times the fall seen in November 2008, during the global financial crisis.
U.S. PMIs will also drop further in April, after record-low March readings showed the economy may be already in recession.
Flash PMIs may not drop that dramatically in April, but it won’t be the end of the pain. Consumption may recover only gradually after lockdowns end and unemployment may rise further — putting pressure on central banks to deliver more stimulus.
(4) Fresh Asian macro data.
South Korea, a trailblazer in the battle against COVID-19, on Thursday releases first-quarter economic growth data. That should provide some idea of how Asia’s fourth-biggest economy has held up.
It has seemingly tamed the outbreak with rigorous testing rather than blanket lockdowns. New cases this week held under 50 daily, a level the authorities say is crucial to keep the coronavirus under control.
The first-quarter GDP numbers will offer a glimpse of what a model virus response looks like in economic terms and a reading on world trade during some of the darkest days. Forecasts vary between a slowdown to a contraction as severe as 2%.
Markets may find an ugly growth number in Asia's bellwether economy harder to shake off than China's -6.8% contraction, putting pressure on nascent confidence. Cash has poured into bonds and the benchmark Kospi stock index has gained 33% since last month's trough — leading the region and second only to a 38% rally in Argentina.
(5) Eurozone finance ministers meet on Thursday, April 23rd.
It’s going to be a big week for the Eurozone. Italy’s bond yields are drifting higher, concerns are growing about its debt ratios and anti-euro sentiment is rising in the bloc’s third-biggest economy.
The European Central Bank calmed markets a month ago with a 750 billion-euro emergency bond-buying scheme. But politicians’ failure to come through with corona bonds undid much of the benefit, meaning markets are again testing policymakers’ resolve by pushing out the Italian/German 10-year bond yield gap.
A key gauge of Italian credit risk is that yield spread is back near levels seen before the ECB announcement. Essentially, the ECB will now have to work harder on capping Italian borrowing costs and preventing the spread from blowing out. It’s probably already front-loading Italian bond buying, but markets have started watching for the ECB to announce another rise in debt purchases.
Could Eurozone finance ministers ease the burden? They meet on April 23rd to have another stab at pooling Eurozone risk, but the chances of success are slim.
A S&P ratings review the next day could see Italy downgraded to BBB-. Beyond that, a “junk” rating looms — and even higher borrowing costs.
Top Zacks #1 Rank (STRONG BUY) Stocks
(1) Astellas Pharma ALPMY: This is a $16 pharma stock with a $29B market cap. I see a Zacks Value score of B, a Zacks Growth score of C, and a Zacks Momentum score of D.
If this firm was domiciled in the USA, this would be considered a good “stay-at-home” defensive cash flow stock in the current context. However, they are headquartered in Tokyo, Japan. The shares trade at the bottom of a multi-year range at the moment.
(2) Huntington Ingalls HII: This is a $195 defense stock. I see a Zacks Value score of A, a Zacks Growth score of B and a Zacks Momentum score of F.
They make nuclear-powered ships for the Navy. The stock blew up during the panic of March 2020. Now, it looks attractive. But without a COVID vaccine, a Navy ship is no different than a cruise ship.
(3) Kinross Gold (KGC - Free Report) : This is a $6 a share gold mining stock, with a market cap of $7.7 billion. I see a Zacks Value score of B, a Zacks Growth score of A, and a Zacks Momentum score of D.
Based in Ontario, Canada, Kinross Gold is primarily involved in the exploration and operation of gold mines. It ranks among the top 10 gold mining companies in the world with 2019 production of around 2.5 million gold equivalent ounces.
With gold trading above $1,700 an ounce, stocks like this are worth a look. But the move up is likely already priced in.
Key Global Macro
On Monday, China is expected to cut its one- and five-year loan prime rates into the Asian market open.
On Tuesday, U.S. existing homes sales get a refresh. These are NOT a fresh indicator, as the data gets reported only after sales close. -6.9% m/m for March is consensus.
Europe’s ZEW sentiment gauges are out. The economic sentiment index was -49.5 last month. This could go to -42.0. The current situation index could get to -75.0 from -43.1.
On Wednesday, expect South Korean GDP growth to retreat sharply. Consensus has +0.7% y/y growth. Remember: they are the best-in-class virus fighting country, so this comparable is important.
On Thursday, the weekly U.S. jobless claims will be another horror show.
We get CPI readings from Japan (+0.4% y/y) and Singapore (-0.1% y/y) in Asia.
We also get a bi-weekly CPI update from Mexico. Deflation may be happening there too. Consensus sees a -0.3% m/m. And Mexico’s retail sales may have fallen -4.0%.
U.K. manufacturing PMI? Look for 42.0. U.K. services PMI? Look for 29.0.
French and German PMIs come out too. The French manufacturing PMI? Expect 36.5. French services? Look for 25.0. The German manufacturing PMI? Expect 39.0. German services PMI? Look for 28.1.
On Friday, U.S. durable goods orders ex-transports may be down -5.0%.
University of Michigan sentiment could be down to 67.7. No more 90s here!
The European IFO indexes come out. All three surveys should offer up poor marks.
Consensus expects 80 on business climate, 81 on current assessment and 75 on expectations.
Conclusion
Zacks readers typically know the U.S. scene better than the global one.
To balance that narrative, I conclude with three global financial support levers. Roll these ideas into your Q1 S&P 500 outlooks too:
(1) Monetary policy has provided epic support. Everywhere.
(2) Fiscal policy finally stepped off the sidelines outside the USA. Germany is exhibit A.
(3) Protectionist U.S. trade rhetoric had more bark than bite.
USMCA has been ratified with relatively token changes. Think Canada, Mexico.
New trade agreements between the U.S. and South Korea, and with Japan, are in place. Both offered relatively small changes.
The “Phase One” China trade deal is done. On top of that, a deadline for certain, China import duty, taxes and fees have been deferred by the U.S. for 90 days.
In short, outside the USA, these 3 macro levers support risk markets. Q1 earnings across industries will certainly adjust the U.S. and global narrative in meaningful ways.
But there is no reason to be more bearish or bullish before it ramps up.
Will you retire a millionaire?
One out of every six people retires a multimillionaire. Get smart tips you can do today to become one of them in a new Special Report, “7 Things You Can Do Now to Retire a Multimillionaire.”
Image: Bigstock
A Q1 Earnings Primer: Global Week Ahead
In the Global Week Ahead, 98 S&P 500 member companies report their Q1 earnings.
One can easily imagine — in an epic Q1 for the ages, some industry groups fared better than others:
Among the names: Netflix, AT&T, T-Mobile, Verizon, Delta, Southwest Airlines, Amazon, Coca-Cola, energy plays like Kinder Morgan, Halliburton, Baker Hughes, Visa, Amex, Capital One, Invesco, Eli Lilly, Biogen, Lockheed Martin, Equifax and Intel.
This wave of Q1 earnings releases will be parsed for fresher signals of economic activity — including forward guidance — than tends to be available from conventional macro releases.
Be aware rookies! Traders already looked ahead.
Importantly, the stock market tone to date has shown fleeting interest in bad releases.
Professional traders are now attempting to time the uncertain magnitude of a potential rebound in activity. Q1 earnings reports hold the granular info they need — to do a refined job at picking winners from the losers.
Up next are the usual Reuters’ five world market themes, re-ordered for equity traders.
I put both U.S. and European earnings narratives up front. It remains to be seen if traders really care about anything outside the U.S. listed scene.
(1) U.S. S&P 500 earnings reports heat up.
If big banks were the appetizer for the U.S. corporate reporting season, investors are preparing to dig into the main course.
Around 100 S&P 500 companies are due to post Q1 results in the coming week.
They include Netflix (NFLX - Free Report) and airlines such as Delta (DAL - Free Report) and Southwest (LUV - Free Report) , after major carriers agreed in principle to a $25 billion U.S. rescue package.
Others include consumer giant Coca-Cola (KO - Free Report) , chip stalwart Intel (INTC - Free Report) , defense company Lockheed Martin (LMT - Free Report) and wireless carrier Verizon (VZ - Free Report) .
Investors are bracing for brutal Q1 earnings as well as for a big profit swoon in 2020 overall. But they will also look for signs of how soon business can get back on track, with Wall Street factoring in a profit rebound in 2021.
(2) European earnings roll in. Does anybody care?
Even the world’s largest financial market regulator, the U.S. Securities and Exchange Commissions, doesn’t care about first-quarter corporate earnings, so why should Europe?
Europe begins reporting results next week with the likes of Credit Suisse , Apple component supplier STMicroelectronics (STM - Free Report) , Sanofi (SNY - Free Report) and Volvo VLVLY all due to report.
The focus is on the second-half and 2021 outlook.
European companies are expected to report a -22% earnings decline in Q1 and -34% drop in Q2, Refinitiv data shows. That would be the sharpest decline in annual profits since at least the global financial crisis.
With the STOXX index down -25% year-to-date, much of that’s already priced in. Those seeking detailed commentary on where companies stand might be disappointed.
So far, ASML Holdings N.V. (ASML - Free Report) and Volkswagen VWAGY have failed to provide outlooks. Given uncertainty surrounding COVID-19 and lockdowns, more companies may follow suit.
(3) Purchasing Manager Indexes (PMIs) get updated across this week.
We’ll soon get a glimpse of how economies fared in April as the full effects of coronavirus lockdowns appeared. And the advance readings of purchasing manager surveys (PMI) are likely to be harsh.
Composite Eurozone PMIs, comprising services and manufacturing, plummeted last month to a record low of 29.7 versus February’s 51.6 — the biggest monthly drop since the survey began in July 1998. The 50-mark separates growth from contraction. What’s more, the difference between final composite PMIs between February and March was 21.876, four times the fall seen in November 2008, during the global financial crisis.
U.S. PMIs will also drop further in April, after record-low March readings showed the economy may be already in recession.
Flash PMIs may not drop that dramatically in April, but it won’t be the end of the pain. Consumption may recover only gradually after lockdowns end and unemployment may rise further — putting pressure on central banks to deliver more stimulus.
(4) Fresh Asian macro data.
South Korea, a trailblazer in the battle against COVID-19, on Thursday releases first-quarter economic growth data. That should provide some idea of how Asia’s fourth-biggest economy has held up.
It has seemingly tamed the outbreak with rigorous testing rather than blanket lockdowns. New cases this week held under 50 daily, a level the authorities say is crucial to keep the coronavirus under control.
The first-quarter GDP numbers will offer a glimpse of what a model virus response looks like in economic terms and a reading on world trade during some of the darkest days. Forecasts vary between a slowdown to a contraction as severe as 2%.
Markets may find an ugly growth number in Asia's bellwether economy harder to shake off than China's -6.8% contraction, putting pressure on nascent confidence. Cash has poured into bonds and the benchmark Kospi stock index has gained 33% since last month's trough — leading the region and second only to a 38% rally in Argentina.
(5) Eurozone finance ministers meet on Thursday, April 23rd.
It’s going to be a big week for the Eurozone. Italy’s bond yields are drifting higher, concerns are growing about its debt ratios and anti-euro sentiment is rising in the bloc’s third-biggest economy.
The European Central Bank calmed markets a month ago with a 750 billion-euro emergency bond-buying scheme. But politicians’ failure to come through with corona bonds undid much of the benefit, meaning markets are again testing policymakers’ resolve by pushing out the Italian/German 10-year bond yield gap.
A key gauge of Italian credit risk is that yield spread is back near levels seen before the ECB announcement. Essentially, the ECB will now have to work harder on capping Italian borrowing costs and preventing the spread from blowing out. It’s probably already front-loading Italian bond buying, but markets have started watching for the ECB to announce another rise in debt purchases.
Could Eurozone finance ministers ease the burden? They meet on April 23rd to have another stab at pooling Eurozone risk, but the chances of success are slim.
A S&P ratings review the next day could see Italy downgraded to BBB-. Beyond that, a “junk” rating looms — and even higher borrowing costs.
Top Zacks #1 Rank (STRONG BUY) Stocks
(1) Astellas Pharma ALPMY: This is a $16 pharma stock with a $29B market cap. I see a Zacks Value score of B, a Zacks Growth score of C, and a Zacks Momentum score of D.
If this firm was domiciled in the USA, this would be considered a good “stay-at-home” defensive cash flow stock in the current context. However, they are headquartered in Tokyo, Japan. The shares trade at the bottom of a multi-year range at the moment.
(2) Huntington Ingalls HII: This is a $195 defense stock. I see a Zacks Value score of A, a Zacks Growth score of B and a Zacks Momentum score of F.
They make nuclear-powered ships for the Navy. The stock blew up during the panic of March 2020. Now, it looks attractive. But without a COVID vaccine, a Navy ship is no different than a cruise ship.
(3) Kinross Gold (KGC - Free Report) : This is a $6 a share gold mining stock, with a market cap of $7.7 billion. I see a Zacks Value score of B, a Zacks Growth score of A, and a Zacks Momentum score of D.
Based in Ontario, Canada, Kinross Gold is primarily involved in the exploration and operation of gold mines. It ranks among the top 10 gold mining companies in the world with 2019 production of around 2.5 million gold equivalent ounces.
With gold trading above $1,700 an ounce, stocks like this are worth a look. But the move up is likely already priced in.
Key Global Macro
On Monday, China is expected to cut its one- and five-year loan prime rates into the Asian market open.
On Tuesday, U.S. existing homes sales get a refresh. These are NOT a fresh indicator, as the data gets reported only after sales close. -6.9% m/m for March is consensus.
Europe’s ZEW sentiment gauges are out. The economic sentiment index was -49.5 last month. This could go to -42.0. The current situation index could get to -75.0 from -43.1.
On Wednesday, expect South Korean GDP growth to retreat sharply. Consensus has +0.7% y/y growth. Remember: they are the best-in-class virus fighting country, so this comparable is important.
On Thursday, the weekly U.S. jobless claims will be another horror show.
We get CPI readings from Japan (+0.4% y/y) and Singapore (-0.1% y/y) in Asia.
We also get a bi-weekly CPI update from Mexico. Deflation may be happening there too. Consensus sees a -0.3% m/m. And Mexico’s retail sales may have fallen -4.0%.
U.K. manufacturing PMI? Look for 42.0. U.K. services PMI? Look for 29.0.
French and German PMIs come out too. The French manufacturing PMI? Expect 36.5. French services? Look for 25.0. The German manufacturing PMI? Expect 39.0. German services PMI? Look for 28.1.
On Friday, U.S. durable goods orders ex-transports may be down -5.0%.
University of Michigan sentiment could be down to 67.7. No more 90s here!
The European IFO indexes come out. All three surveys should offer up poor marks.
Consensus expects 80 on business climate, 81 on current assessment and 75 on expectations.
Conclusion
Zacks readers typically know the U.S. scene better than the global one.
To balance that narrative, I conclude with three global financial support levers. Roll these ideas into your Q1 S&P 500 outlooks too:
(1) Monetary policy has provided epic support. Everywhere.
(2) Fiscal policy finally stepped off the sidelines outside the USA. Germany is exhibit A.
(3) Protectionist U.S. trade rhetoric had more bark than bite.
In short, outside the USA, these 3 macro levers support risk markets. Q1 earnings across industries will certainly adjust the U.S. and global narrative in meaningful ways.
But there is no reason to be more bearish or bullish before it ramps up.
Will you retire a millionaire?
One out of every six people retires a multimillionaire. Get smart tips you can do today to become one of them in a new Special Report, “7 Things You Can Do Now to Retire a Multimillionaire.”
Click to get it free >>