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Earnings season begins. Wall Street’s expectations

The 2019 Q4 reporting season begins today with a trio of the largest US banks in the United States. Analysts and investors remain positive that the reports will be some of the best of 2018, and that it is profits, not the liquidity tsunami, that will push Wall Street into 2020

Last year’s rally was driven mainly by three reductions in interest rates by the Federal Reserve. But valuations outpaced profits.

Investors hope that cheaper money is already circulating in the system and accumulated by companies.

Four sectors are emerging, which market players will follow closely.

Will US consumption remain healthy?

Strong spending and rising wages have not always driven strong reporting seasons, and analysts will closely monitor the results, especially from last year’s holiday season.

The consumer goods sector (consumer discretionary) is expected to reflect a decline, with revenue expected to have fallen by 14% over the same period a year earlier.

Energy sector – the turning point?

The oil and gas sector is expected to report staggering results. EPS of a 37% decline over the same period a year earlier according to initial analyzes. The sector has been suffering for years alongside low gas and oil prices kept low by the continued oversaturation of the US shale gas market. However, analysts remain hopeful. Due to increased activity in the industrial sector, this can also have a positive impact on the energy sector.

Will the technology sector live up to expectations?

The largest sector in the S & P500 is expected to see a slight decrease in its EPS or just below 2%. The sector itself has experienced significant turmoil, most notably in the hardware and semiconductor companies, which have had to pour money into their businesses to sustain themselves. This is weighing on profits despite higher revenues.

This year, with smaller spending levels, EPS growth is expected to be more than 9% and 4% revenue growth.

Are bosses bullish enough?

The mood for corporate bosses last year was not very clear. They had enough problems on their heads, especially around the trade war and the year was difficult compared to 2018, especially after the tax cuts were dropped. The first three months of the new decade and the whole of 2020 are now on the agenda.

Investors should also pay attention to inflation. If evidence emerges that inflation is beginning to rise, ie. rising prices – in the form of more labor and raw material costs – may cause the Fed to take a hawkish position. And this is something that should not be neglected.

Even so, the forecasts are for corporate America to revive this year. It does mean, however, that companies that miss their goals may not be so sympathetic.

Source: Financial Times


 Trader Martin Nikolov


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