Earnings season is beginning as major financial institutions like Citigroup (C), BlackRock (BLK), and JP Morgan Chase (JPM) are set to post their earnings reports. In addition, key economic data in the form of the Consumer Price Index (CPI) and Producer Price Index (PPI) is set to be released, potentially influencing the Federal Reserve’s next policy decision.
Yahoo Finance Reporter Josh Schafer joins The Morning Brief to discuss how the market may react to this data and to break down the key themes that investors should pay attention this week as a slew of economic data is set to be released.
For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.
Editor’s note: This article was written by Nicholas Jacobino
Video Transcript
– Earning season kicking off this week with Delta reporting on Wednesday, then some of the country’s biggest banks, like JP Morgan, City, and Wells Fargo reporting on Friday to tell us what the key things we should be watching this season. We have Yahoo Finance reporter Josh Schafer. So Josh, what are some of these key themes we should be paying attention to?
JOSH SCHAFER: We should probably care what the biggest– the CEO of the biggest bank thinks about interest rates, right. So you guys were just talking about Jamie Dimon. That’s obviously one of the key takeaways we get, especially from the next couple of weeks, is just overall what these executives are saying about the state of the economy, about the path for interest rates, and how that might impact their business.
One thing that strategists– equity strategists have been highlighting about this earnings season to think about is when you look at earnings projections for the year, they’re very high right now still at the end of the year. We’re talking almost 17% growth in the fourth quarter compared to the year prior. If companies don’t guide at that aggressive pace, we’re going to see those earnings estimates fall, then potentially that could also impact the market, right.
So that’s going to be one thing to watch. But I think the bigger thing to watch here is what we have at the top of the screen right now, which sectors are seeing earnings growth? We’ve talked a lot about the broadening of this stock market rally in the last month. And are we going to see early signs of it?
Now, strategists do not expect to see some crazy uptick that tech is not the leader in earnings growth. Tech is still expected to be the leader. But you can see from this chart here from Deutsche Bank, I think it sort of highlights nicely the trends we’re looking for.
So purple is mega-cap growth in tech. And you can see, they’re expecting those earnings to fall slightly. By the end of the year, they think that line in this yellow line, which is the other– we’ll call it the other 493 for all intents and purposes here. They’re seeing that yellow line is eventually hopefully going to converge with the purple line. That lines up with earnings growth for your market breadth story.
– Yeah. So then Josh, that kind of leads me to the question I was going to ask you. And it’s curious just from your conversations that you’ve had with strategists out there on the street. When we talk about the slowdown that we’re expecting to see in tech, you talk about the pickup that you’re expecting to see and the other sectors, walk us through just how that really also then supports potentially this further rotation that we could see, this broadening out that we have started to see over the last several weeks.
JOSH SCHAFER: Yeah. So we’ve really seen a bet. I’ve been calling it a bet on the US economy, right, a bet on economic growth with some of these sectors that have been picking up. Interestingly, we should highlight energy is not one of the sectors that is expected to post significant.
– But it’s number one this year. It’s up 17%.
JOSH SCHAFER: Right. And then you look at the earnings projections. And earnings are expected to fall 14% year over year. But again, that gets back to bouncing back, right. It was actually worse last quarter.
– It’s all about the comps.
JOSH SCHAFER: And then– exactly. And you look here, you see industrials posed to do well. And that’s been a sector that has done well overall in the S&P 500 to start this year. But yes, a really– it was interesting. [INAUDIBLE] had a great quote on this when I spoke with him looking out for the rest of the year.
He said price action is one thing. But at some point, the fundamentals always matter. And you need the fundamentals to back this story that we’ve had, and then maybe it gives us more room to run. From a fundamental standpoint, of course, we know this Fed debate that we have going on right now could always change.
– Only price pays. I would just add that as a little footnote. Only price pays.
– All right, Josh. Great stuff. Thanks so much.
