Earnings Parade Ahead – Monday Morning Market Memo – April 27, 2020

Good morning,

Stocks were choppy last week as investors digested an historic drop in oil prices, weak economic data, mixed earnings results, differing reports on treatments for the coronavirus, and the most recent economic aid package out of Washington DC. The nearly $500 billion package includes another round of assistance for small businesses along with funds for hospitals and coronavirus testing. When it was all said and done last week the Dow Jones Industrial Average fell 1.9%, the NASDAQ Composite dipped .2%, and the Standard & Poor’s 500 Index lost 1.3%. Looking to the week ahead, get ready for an earnings parade!

The week ahead is the biggest earnings week, with a long and diverse list of blue chip companies scheduled to announce results. Companies reporting include Advanced Micro Devices, 3M, Alphabet, Caterpillar, Merck, Pfizer, PepsiCo, Boeing, Facebook, General Dynamics, Dunkin’ Brands, General Electric, Microsoft, Gilead Sciences, Kraft Heinz, McDonald’s, Twitter, Visa, Honeywell and Clorox. Probably the two most anticipated reports though are from Amazon.com and Apple, both due out on Thursday. Consensus estimates are for the companies to post earnings per share of $6.35 and $2.32 respectively.

In total, S&P 500 earnings for the first quarter are expected to decline 15.8%, which would mark the largest year-over-year decline in earnings for the index since 2009, according to data from FactSet. Besides earnings, another data point we’re tracking this week is the initial estimate of first quarter economic growth. The U.S. Department of Commerce reports Gross Domestic Product on Wednesday with market expectations of an approximately 4% contraction.

Many investors have questioned/wondered why the market is not down more with such a significant drop in earnings and economic growth expected. One reason is that the market is a discounting mechanism, it is forward looking. The market is estimating what things will look like beyond the pandemic and the shutdowns. Another factor is the unprecedented level of monetary and fiscal stimulus that that has been put into place to help the economy, which has been limiting the drop in equity prices.

As always, feel free to call us with any questions you may have or if you would like to set up a meeting.

All the best – Southport Station Financial Management, LLC