Market Overview

A Trader's Guide To This Q3 Earnings Season

A Trader's Guide To This Q3 Earnings Season

Third-quarter earnings season is officially underway, with JPMorgan Chase & Co. (NYSE: JPM) and Citigroup Inc (NYSE: C) issuing their reports Thursday, and Wall Street analysts are discussing what investors should expect.

Earnings And Revenue Beats

Investors should expect S&P 500 companies to deliver an overall Q3 earnings beat of roughly 2 percent, Bank of America analyst Savita Subramanian said earlier this week. Consensus S&P 500 EPS estimates are down about 3 percent from one quarter ago on the basis of concern about the financial impact of hurricanes Irma and Harvey.

Bank of America is calling for sales growth of 4 percent for the S&P 500 in Q3, boosted by forex tailwinds due to a weaker U.S. dollar. 

Beats Not Enough?

While preliminary results are positive, Subramanian warned investors to keep expectations in check.

“A solid earnings season may not be enough to move the market higher — valuations are lofty, focus has increasingly shifted to policy, and last quarter, for the first time since the peak of the tech bubble, beats were not rewarded,” Subramanian said.

Morgan Stanley analyst Michael Wilson is also calling for a mixed bag this earnings season. Morgan Stanley expects companies to top consensus expectations, but Wilson echoed Bank of America’s concerns that it will not be enough to support share prices.

“We would expect to see a pull back or consolidation as earnings are actually reported — i.e. a sell-the-news event — before it can make its next surge toward our 1Q18 2,700 target,” Wilson said.

In a note to clients on Tuesday, LPL Financial said near-term downside is limited unless earnings majorly disappoint.

“Although we may see a pickup in volatility in the near term, our early take on 2018 S&P 500 earnings is supportive of gains for stocks next year,” the firm wrote.

Earnings Season Alpha

For investors looking for a trading edge this earnings season, Morgan Stanley expects the technology, energy and financial sectors to be the leading growth contributors on the quarter.

So far in 2017, the Financial Select Sector SPDR Fund (NYSE: XLF) has moved mostly in-line with the market, and is up 12.9 percent year-to-date. The Technology Select Sector SPDR Fund (NYSE: XLK) has been a major outperformer, up 24.8 percent. The Energy Select Sector SPDR (ETF) (NYSE: XLE) is down 9.6 percent.

Within the technology sector, Citi analyst Christopher Danely is particularly bullish on semiconductor stocks, explaining that “business conditions are the best since 2010 due to a combination of demand being the strongest since 2010 and inventory declining in 2016.” The iShares S&P NA Tec. Semi. Idx. Fd.(ETF) (NASDAQ: SOXX) is up 33.9 percent year-to-date.

Related Links:

How To Use Options During Earnings Season

Big Bank Q3 Earnings Cheat Sheet: The Thing That Matters Most For Each Bank

Posted-In: Analyst Color Earnings Long Ideas News Sector ETFs Events Analyst Ratings Trading Ideas Best of Benzinga


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