INSUBCONTINENT EXCLUSIVE:
NEW YORK: Reports from Netflix, Intel and Texas Instruments next week may hint at what is to come in the December quarterly earnings season,
with some investors wary of possible danger signs that could knock Wall Street after its latest surge to record highs.
The S-P 500 has
gotten off to a strong start in January, up 3 per cent so far this year, fueled by a truce in the US-China trade war, low interest rates and
signs the economy remains healthy.
Analysts on average expect reports to show S-P 500 earnings per share fell 0.8 per cent in the fourth
quarter, with technology earnings seen up 0.6 per cent, according to IBES data from Refinitiv.
Investors are looking beyond fourth-quarter
results at what companies may say about outlooks and plans for investment in light of the recently signed Phase 1 trade deal between
Washington and Beijing.
Earnings estimates for the fourth quarter have already weakened slightly in the latest week as initial reports from
big banks and a smattering of other companies filtered in.
“Most of the rally we had in 2019 was in anticipation of better earnings in
2020,” said Willie Delwiche, an investment strategist at Baird in Milwaukee
“Rather than getting caught up in what the Q4 numbers are, the attention will be on what - if any - revisions you get to Q1 and Q2
numbers.”
Analyst estimates for quarterly earnings tend to decline as any given quarter approaches, and any hint that estimates for 2020
are bucking that trend would be positive, Delwiche said.
The S-P information technology index .SPLRCT, which includes such market
heavyweights as Apple (AAPL.O), Intel (INTC.O) and Microsoft (MSFT.O), has led Wall Street so far in 2020 with a nearly 6 per cent gain
It is up 50 per cent over the past year, the strongest performer over that period
The index is now trading at 22 times expected earnings, its highest multiple since around early 2005, according to Refinitiv’s
Datastream.
The S-P 500 is trading at about 18 times expected earnings, similar to levels it briefly hit two years ago.
“There’s going
to be heightened attention to guidance to increase comfort levels with valuations, given the strength we’ve seen in the last two months in
the majority of tech names,” said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.
Because of
that, “you’re more likely to see slight disappointments punished more severely than positive guidance is rewarded,” he
added.
Underscoring the importance of results from Intel on Thursday and Apple on Jan
28, the information technology sector is expected to have accounted for nearly 22 per cent of total S-P 500 operating earnings in the last
quarter of 2019, according to S-P Dow Jones Indices.