The Reports You Need to Watch This Week as Earnings Season Begins

Stimulus this, stimulus that…

After last week’s surprise breakdown in talks between the White House and Democrats in the House of Representatives was followed by the talks restarting almost immediately, stimulus is all Big Media has been talking about.

The major news sites are full of “who’s talking to whom,” “who said what behind their backs,” and word-by-word analysis of their statements.

Big Media has an unhealthy obsession with the stimulus.

But the reality is that traders and investors know a stimulus is coming. In some way, shape, or form the economy will get more support from the government.

For the stock market, the intricate details don’t matter nearly as much as Big Media seems to think.

But in its obsession with stimulus, Big Media isn’t talking about a much bigger market mover this week: It’s the start of earnings season, with the six big banks all reporting within two days of each other.

Analysts are expecting a 20% drop in earnings compared to the same quarter last year because of Covid-19. That sounds bad, but considering that the previous quarter saw a 25% drop and the one before that a 32% drop, 20% is a substantial improvement.

And that improvement is all traders and investors are looking for.

Another interesting thing to keep an eye on this week is the retail sales bonanza. Inc. (AMZN) launches its Prime Day event tomorrow. The same day, Target Corp. (TGT) will launch its Deal Days event, and Best Buy Co. Inc. (BBY) will start offering some of its Black Friday deals a month early.

Meanwhile, Walmart Inc.’s (WMT) Big Save event began yesterday.

Good sales numbers from all these events will be good for markets, as they’ll show us how much of an appetite for spending Americans have. With about 70% of the U.S. economy being powered by consumer spending, more spending here means a faster recovery.

Speaking of which, Apple Inc. (AAPL) is widely expected to unveil its new 5G iPhones at its “Hi, Speed” event tomorrow (and possibly some other gadgets, too). This will be another test of the American consumer’s ability and desire to spend money. And this anticipation has the mega-tech stocks soaring…

In the past, Apple’s iPhone events have often been so hyped-up that the stock dips just after, and then recovers when the sales of the new devices prove to be strong.

I expect the same will happen this time.

As I mentioned, the six major banks are reporting this week. JPMorgan Chase & Co. (JPM) and Citigroup Inc. (C) report on Tuesday morning, while Wells Fargo & Co. (WFC), Goldman Sachs Group Inc. (GS), and Bank of America Corp. (BAC) report on Wednesday. Investment bank Morgan Stanley (MS) closes things out on Thursday.

While traders will be look at each individual earnings report, the focus will be more on what all six reports together tell us about the U.S. economy as a whole, and how it’s recovering.

We’re also getting two different views of the healthcare sector this week, as Johnson & Johnson (JNJ) reports tomorrow before the open and Walgreens Boots Alliance Inc. (WBA) reports on Thursday morning.

Walgreens has struggled and will continue to struggle, as CVS Health Corp. (CVS) continues to outperform as a convenience store and pharmacy chain, while Amazon breathes down Walgreen’s neck as it gets into drug delivery.

Johnson & Johnson, meanwhile, has been in the news all summer because of its work on a Covid-19 vaccine (and a recent announcement that their trial would be for a single-shot solution). But that’s really a small part of its business. Tomorrow, I’m expecting to hear good news on the company’s other healthcare businesses.

All in all, the bar for earnings success this quarter is low. Traders and investors are not looking for much to be happy, just improvement. That’s a big positive for stocks – low expectations are easier to over-deliver on.

Great trading, stay safe out there, and God bless you,

D. R.

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