Investors will turn their focus to earnings results in the week ahead, when some of the largest U.S. banks report their Q2 2020 numbers, the 'official' kick-off for the coming earnings season.
After many companies, during their Q1 reports, didn't provide outlooks for upcoming quarters due to the mounting uncertainty of the coronavirus pandemic, earnings for the quarter that just closed are expected to fall by 44%. It's anticipated to be the worst quarterly performance since the Great Recession, when S&P 500 profits fell by 67% in the fourth quarter of 2008, according to Refinitiv I/B/E/S data.
But if companies are able to show that they are coming out of the global health crisis just fine and their future sales are improving, investors will take it as a sign that the worst is over. The strong recovery in major indices since the March meltdown also shows that investors have priced in a similar outcome.
Below, our short list of three large-cap stocks from different sectors which we'll be monitoring as earnings season ramps up:
1. Netflix
Streaming entertainment giant Netflix (NASDAQ:NFLX) will report Q2 earnings on Thursday, July 16 after the market close. Analysts are expecting $1.82 a share profit on sales of $6.09 billion.
Shares of Netflix have performed very strongly during the COVID-19 pandemic on investor hopes that the company's streaming business will thrive because it's a perfect “stay-at-home” stock.
As of Friday's close, the S&P 500 index was down more than 1% so far this year, while Netflix's shares had gained about 69%. They rose 8% for the day to settle at $548.73.
This unexpected resilience comes after Netflix’s dismal performance in 2019, when the stock lagged far behind the surge that pushed so many other mega cap tech stocks to new highs.
This coming week’s earnings report will be crucial to sustain that rally. The Los Gatos, CA-based company has to show it's cementing its position as the dominant streaming service during the coronavirus pandemic.
2. JPMorgan Chase
Wall Street’s powerhouse commercial and investment bank, JPMorgan Chase (NYSE:JPM), will release Q2 earnings on Tuesday, July 14, before the market open. Analysts are expecting $1.19 a share profit on sales of $30.4 billion.
There's hardly any segment of the banking business which hasn’t suffered in the wake of the global pandemic. Interest rates have fallen to near zero as the Fed unleashed unprecedented monetary stimulus, in order to fuel growth, while consumers have drastically cut spending—the main engine of U.S. economic growth over the past decade.
When JPM reports, investors will be looking for cues whether the bank is close to the bottom of loan losses as the economy reopens and businesses try to get back on their feet. JPMorgan stock closed on Friday at $96.27, down 32% for the year.
3. Johnson & Johnson
Global healthcare giant Johnson & Johnson (NYSE:JNJ) will report second quarter earnings before the market opens on Thursday, July 16. The stock has been under pressure during the past one year on concerns the increasing number of legal disputes related to its baby powder could damage earnings as well as future growth potential.
But the coronavirus pandemic has brightened the outlook for solid healthcare stocks which are showing resilience as investors turn to them for their safe dividends. Shares of JNJ closed at $142.37 on Friday, little changed for the year.
The drugmaker is expected to post $1.47 a share profit on sales of $17.5 billion for the period, according to analysts’ average estimate.
The company is among the group of drugmakers working to produce a COVID-19 vaccine. J&J has previously said its vaccine could be ready for emergency use in health workers by January. The New Brunswick, New Jersey-based pharmaceuticals giant has a $1 billion-plus agreement with the U.S. government’s biomedical research unit to develop it.