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The corporate reporting rush is about to hit this week, giving investors an early indication of whether the U.S earnings recession continued in the final quarter of 2019.
After results from some of the biggest banks in the past few days, the week ahead will feature earnings from 42 members of the S&P 500 index SPX, +0.39% and six Dow Jones Industrial Average DJIA, +0.17% components.
Some of the biggest names on the docket are in technology, with International Business Machines Corp. IBM, +0.24% and Netflix Inc. NFLX, +0.31% getting the show started Tuesday afternoon and Intel Corp. INTC, -0.10% bringing up the rear after Thursday’s closing bell.
The 42 S&P 500 components that have already reported results for the fourth quarter have sported a 4.6% average decline in profits, and FactSet’s compilation of earnings estimates for the index calls for a 2.4% drop by the time all reports are in. That would mark the fourth straight quarter of year-over-year declines in net income and a continuation of the earnings recession, which occurs when average profits fall for two or more quarters in a row.
Though the estimates on the whole are pessimistic on profit growth, some are betting that results will play out more positively. Credit Suisse Chief U.S. Equity Strategist Jonathan Golub looks at per-share earnings, which are expected to drop by a slimmer 0.3% according to his tally of estimates, and says that the metric is actually on pace for a 2.8% rise if companies come in ahead of published estimates at their typical rate. Share buybacks reduce shares outstanding, which could help earnings per share improve at a faster rate relative to net income.
See more: Earnings recession set to end with a fourth-quarter comeback
The upcoming docket features a flurry of high-profile names that have a sizable impact on the S&P 500 due to the index’s market-capitalization weighting, so investors will have a better indication by the end of the week about the S&P’s overall profit trajectory.
Monday is a U.S. market holiday, but here are some key themes to watch for as the weekly earnings slate kicks of Tuesday morning.
Tech’s first hurrah
Among the initial tech companies to deliver results this season are two of the Dow’s five tech companies, IBM and Intel. Their results will give a glimpse of the corporate spending landscape, as well as whether these two technology stalwarts have overcome challenges within their own businesses.
For IBM, on Tuesday afternoon’s docket, a question is whether the company can show strength in its core business outside of benefits from its recent Red Hat software acquisition. Morgan Stanley recently took a pessimistic view, writing that its survey of chief investment officers showed that more expect to decrease their spending on IBM software this year than plan to increase their spending.
IBM earnings: Outlook for 2020 amid soft software market is key
Intel will be looking to prove that it’s working past CPU product delays and stepping up its execution to halt Advanced Micro Devices Inc.’s AMD, +2.33% momentum. The company might have benefitted from better hyperscale spending and memory trends, according to Wedbush, but analysts there are still worried that the company’s string of recent missteps could hurt its market share. The company reports Thursday afternoon.
Intel earnings: How Intel figures in data-center recovery is focus
Fellow chipmaker Texas Instruments Inc., seen as a bellwether for the semiconductor industry, posts numbers Wednesday afternoon. Apple Inc. AAPL, +1.11% supplier Skyworks Solutions Inc. SWKS, +0.88% joins Intel on Thursday.
The rest of the Dow
Filling out the Dow docket are Johnson & Johnson Inc. JNJ, +0.65% on Wednesday, Travelers Co. Inc. TRV, +1.35% and Proctor & Gamble Co. PG, +0.27% on Thursday, and American Express Co. AXP, +0.74% on Friday.
Johnson & Johnson’s medical device business is showing “signs of life” following the sale of lower-growth assets, J.P. Morgan analysts say, but performance could be choppy in the near term. The company also continues to deal with lawsuits alleging cancer-causing products in the company’s talcum powder.
Braving Disney+
Netflix has long ruled the video streaming world, but Tuesday will be the first time the company faces Wall Street after Walt Disney Co. DIS, -0.54% officially debuted its rival offering.
Investors have been concerned lately with how Netflix users would react to the November launch of Disney+, which is priced lower than Netflix and has apparently gotten off to a strong start, according to third-party data. There are also questions about how many streaming services users will be willing to pay for at one time amid the flurry of new offerings, including from Apple, which charges $4.99 for a fairly small library of shows—if you haven’t already received its service for free through a new device purchase.
Full preview: Netflix earnings should show fallout from new streaming rivals
Disney’s arrival may create some “volatility” in the short term for Netflix in the U.S. and Canada, Stifel analysts argue, but they’re upbeat that the company’s investment in local content for overseas markets will pay off. Netflix investors should note that the company is changing the way it reports regional “memberships” going forward: It will break its numbers down by Asia Pacific; Europe, the Middle East & Africa; Latin America; and the U.S. and Canada. The company will only give its subscriber forecast on a global basis.
Another media name on the weekly docket is Comcast Corp. CMCSA, +1.34%, which recently unveiled details about its forthcoming Peacock service, with plans to begin a rollout in the coming months. It reports Thursday morning.
See more: Comcast announces Peacock streaming service with free, subscription options
The Boeing fallout continues
Several airlines will discuss the continued grounding of Boeing 737-Max jets, especially given new details about how Boeing Co. BA, -2.36% employees behaved in the lead-up and aftermath of two deadly crashes.
United Airlines Holdings Inc. UAL, +0.18% starts the week off with its Tuesday report, followed by American Airlines Group Inc. AAL, +0.60%, JetBlue Airways Corp. JBLU, +1.11%, and Southwest Airlines Co. LUV, -0.52% on Thursday. United, American, and Southwest have already said that they will remove the Max planes from their schedules through early June. JetBlue does not have the Max in its fleet.
The key question for airline investors is how the carriers will fare once the planes come back into service. Airlines saw margin growth last year for the first time since 2015, and there are concerns about “a potential spike in capacity” once the Max jets are flying again. Expect discussion of supply and load strategies when the companies hold their conference calls.
