Earnings Season Sets Off as Stocks Sit at All-Time Highs

12 Jul 2021 · 3rd Party Analysis

WRITTEN BY ThorFX

In Summary

  • Start of corporate earnings set to define the week
  • Large US banks report later in the week amid sky-high forecasts and a record-high stock market

It’s earnings time and Wall Street is bracing for increased volatility and market jitters as investors will be watching whether companies could defend their all-time high valuations. This week marks the start of the corporate earnings reports for the quarter ended June. While the stock market is sitting at a record high, market participants have high expectations that the current earnings season will boost the norms even further, allowing the solid rally to continue.

US companies across a wide range of sectors are expected to overdeliver and beat profit expectations during the second-quarter season, propelled by a strong recovery coupled with an economic reopening. Groups of companies listed on the broad-based S&P500 are projected to top earnings-per-share growth for the previous quarter ended June by about 65%, underscoring the scale of America’s rebound from the depths of the pandemic.

The earnings season, entering right when all three benchmarks float at fresh records, will kick off with corporate reports by investment banks such as JPMorgan Chase, Goldman Sachs, Bank of America, and Citigroup. Financial results this week will be revealed also by BlackRock, Delta Air Lines, and United Health.

This year alone, the S&P500 has gained 16%, notching 38 records along the way, the latest one on Friday. For the first quarter of 2021, companies from the S&P500 increased their profits by 52.5% compared with the same quarter a year ago. If Wall Street forecasts come to fruition, the breakneck speed of growth this year will be the strongest since the wake of the 2008-09 financial crisis.

Positive Performance for Cyclical and Value Companies

The recovery in profits is projected to be led by economically sensitive companies that have benefited the most from the reopening. Banking shares, travel stocks, and other real-economy groups are expected to be at the forefront of the corporate earnings results.

These so-called “cyclical” or “value” companies have performed particularly well this year, as they were strongly favored by money managers who anticipate a solid 6.5% surge in consumer-fueled economic growth for the year.

While futures tied to the benchmark averages hover mildly lower, Friday’s sharp rebound following a Thursday selloff highlighted how resilient the stock market has been in recent months. Risk-hungry investors piled onto stocks across the board on Friday and erased a solid decline from the previous day. Moreover, all three stock gauges closed at all-time highs.

Last week, the market shrugged off worries that the new Covid-19 variant would dent an economic rebound despite the relatively high rate of vaccination across the US and Europe. Shortage in labor-market participation also weighed on the economic sentiment. Investors, however, were able to parse mixed economic reports and to project a sustained upward trajectory for economic expansion.

As the stock market is preparing to enter the earnings season, cryptocurrencies today are hovering in the green. Bitcoin and Ether are both trading higher on the day, up more than 2% each. Digital assets this

month have been trading relatively muted as crypto enthusiasts are still trying to gather enough buying momentum that will pull the nascent market out of the slump and push it toward higher grounds.

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