Lowered Expectations Make This a Crucial Earnings Season

JP Morgan (JPM) decisively moved the markets on Friday with their Q1 earnings that had record revenues and earnings. In addition, CEO Jaime Dimon’s positive economic outlook helped boost not only the stock, but the market in general. In contrast, Wells Fargo (WFC) also reported good earnings and a decent outlook, but their volume of loans and deposits were down more than analysts were expecting. WFC was up in the Friday pre-market, perhaps on the coattails of JPM and them plummeted for the rest of the day. In Monday premarket moves, two more of the top 6 U.S. Banks reported earnings with Goldman Sachs falling -3% as earnings beat estimates, but revenues dropped 13% Year-over-Year. Citigroup (C) also reported strong earnings and reduced revenues, though the latter was much less than GS’s, and Citigroup’s stock only fell -0.5%.

Earnings Season Will Be a Key Market Mover

The earnings season, where companies report their first quarter of 2019 (Q1) numbers, is upon us. Traditionally, earnings season doesn’t start until Alcoa (AA), the large aluminum manufacturer, reports earnings – and that will be next Wednesday. But some large banks reported on Friday (4/12) and their results were market movers. I wrote last Monday about J.P. Morgan (JPM), one of the best run banks in the world, reporting before the open on Friday along with beleaguered Wells Fargo (WFC). Rounding out the big banks top 6 – #2 Bank of America (BAC) and #6 Morgan Stanley (MS) will report on Tuesday and Wednesday respectively.


The Secret to Potentially Cashing in BIG on Earnings Season


A flood of companies will be making huge announcements in the coming weeks which can cause price explosions of up to 1,000% – bigger than any normal “up” day in the markets. And this proprietary stock screener has pinpointed exactly which stocks are the strongest. Follow along, and you could be raking in $30,000 in the next 10 weeks. Get all the details here.


By the end of next week (4/26), we’ll have a good idea about earnings directions.

Analysts are projecting a drop in Q1 Year-over-Year (YoY) earnings at a clip of -4.2%. This would be the first quarterly drop in almost two years. Here’s a chart from LPL Financial based on data from the well-regarded FactSet group:


As a reminder, corporate tax reform hit in Q1 of 2018, and so the Q1, Q2, Q3 and Q4 of 2018 all had the lower tax rates and accelerated depreciation advantages when compared to the same quarters of 2017.

That means that this earnings quarter will give us the first reports that compare post-tax reform quarters – Q1 of 2019 has no tax reform benefits vs. Q1 of 2018.

With the bar set very low, with an expected -4.2% drop in S&P 500 earnings, it’s possible that even a very modest earnings improvement above this very low bar could be seen as a positive by the markets.

Surprisingly, the same analysts expect overall earnings to increase +5% YoY. That means analysts are expecting rising costs to outstrip rising revenues. This sets us up for a very interesting focal point for this earnings season: profit margins. If a company has better profit margins that expected (profit margins measure the amount of income divided by expenses, or how much of each dollar of sales turns into a profit), look for them to get a boost in stock price.

Put together enough companies with better than expected profit margins and this quarterly earnings season could have a positive impact on the stock indexes and propel this bull run even higher.

Great trading and God bless you,

D.R. Barton, Jr.

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