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Earnings season is the next big test for markets and value stocks in the week ahead

Traders work at the New York Stock Exchange (NYSE) in New York City, U.S., December 2, 2021.

Brendan McDermid | Reuters

Market focus in the week ahead turns to fourth-quarter earnings, which are expected to show profit growth in economically sensitive stocks outpacing tech stocks.

The earnings period may test the theory that value and cyclical stocks will outperform tech stocks.This will also be a time for investors to see first-hand how companies are dealing with inflation, which 7% annualized growth in last month of 2021, as measured by the consumer price index.

“Earnings are expected to grow 20% year over year. These companies are likely to beat that … and will grow at a 25% to 30% rate,” said Jonathan Golub, chief U.S. equity strategist at Credit Suisse.

“This along with the cyclical sectors of about 20% of the market — energy, materials, industrials, discretionary — is expected to grow 95% to 100% at full tilt,” he added. “Everyone should be better than tech. do better.”

Earnings in the S&P technology sector are expected to grow just 11%, according to Golub estimates.

“Energy, materials, industrials, these old-economy companies are expected to deliver better earnings growth, not just now,” but in subsequent quarters, he said.

Earnings in the materials segment are expected to rise 62%, and earnings in the industrial segment are expected to rise 52%. Energy profits are set to rise sharply since coming out of negative territory last year. Consumer discretionary, minus Internet retail, is expected to grow 33.9% in earnings. Financials, which are also seen as cyclical stocks, are only expected to grow profits by 2%.

“When inflation is at these levels, some companies naturally win and some don’t. These companies are the biggest beneficiaries of inflation. It’s an inflation story,” Golub said. “When you see where the market is exciting, you shouldn’t be looking at tech companies. 10% growth this year isn’t bad. It’s good, but other companies are doing much better.”

Earnings forecast revisions also benefit cyclical sectors, Golub said. Growth expectations for cyclical stocks have risen 9.5% since September, but earnings estimates for the tech sector have fallen 1.6%.

Several major banks reported their earnings season on Friday, and the week ahead is set to get busier across, such as Goldman Sachs, traveler and Bank of America Report, so do Netflix and consumer brand giants Procter. There are also results from shipping companies, including JB Hunter Shipping Services, United Airlines and Union Pacific.

although Citigroup, FuGuo bank and JPMorgan, when they reported Friday that beat expectations, their stocks had a mixed performance. JPMorgan Chase down more than 6% The disappointing outlook was released on Friday, including a warning of headwinds to wage inflation.

“I think we’re going to get real clarity from a lot of industrial and cyclical types of companies and whether they can weather price pressures and supply chain issues, and I think well-managed companies are going to be great,” Steve Sosnick said the chief strategist at Interactive Brokers.

bond-linked stocks

Sosnick said he expects technology to continue to suffer from any wild swings. 10-Year Treasury Bond It was around 1.77% on Friday, down from a recent high of 1.8%.

The 10-year yield rose as bonds sold off and moved sharply higher at the start of the year as the Fed reiterated its hawkish stance.The central bank revealed that it had discussed Shrinking balance sheet at December meeting. The Fed has already forecast three rate hikes this year, which could tighten policy further.

Technology stocks outperformed industrials and materials, which both fell about 1% this week. Technology stocks, which fell about 0.6% this week, also outperformed financials, which fell 1.3%.

This Nasdaq It was down about 1% for the week through Friday afternoon, while the S&P 500 lost 0.8%.

The U.S. Treasury market may be a little quieter in the week ahead, with markets closed on Monday for Martin Luther King Day.

Wells Fargo’s Michael Schumacher said Fed officials had entered a period of silence ahead of their Jan. 25-26 meeting.

“10 years and 30 years [Treasury] Auctions are out of the way. In our view, a major near-term catalyst has occurred. We do think next week will be quiet,” Schumacher said. “My guess is 10 years of sitting. That’s at least a respite for the stock market. “

Several economic reports are on the calendar, including the Fed’s Empire State Manufacturing Survey on Tuesday and the Philadelphia Fed Manufacturing Survey on Thursday. Existing home sales were also reported Thursday.

Sosnick expects volatility to continue and tech to continue to come under fire. “I think what we’re seeing is that any price growth is returning to growth at a reasonable price,” he said.

A week ahead of the calendar

on Monday

Markets closed for Martin Luther King Jr. Day


income: Goldman Sachs, Charles Schwab, Bank of New York Mellon, Truist Financial, JB Hunter Transport, Interactive Brokers

8:30 AM Empire State Building Manufacturing

10:00 a.m. NAHB survey

4:00 PM TIC Data


income: Bank of America, Procter, United Health, Bank of America, Morgan Stanley, Alcoa, United Airlines, Discover Finance, FNB, Fastenal, Citizen Finance, Pros, state street, America

8:30 a.m. House begins

8:30am Business Leaders Survey


income: Netflix, traveler, Union Pacific, American airlines, Baker Hughes, fifth third, intuitive surgery, Northern Trust, CSX, Regional Finance, PPG Industries

8:30 a.m. Initial jobless claims

8:30 a.m. Philadelphia Fed Manufacturing

10:00 AM Existing Home Sales


income: Schlumberger, Ally Finance, Huntington Bank shares

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