Earnings Watch: Will investors be flying blind after Q1 earnings?

Equities 3 minutes to read

Peter Garnry

Head of Equity Strategy

Summary:  Equities have been rallying and with the earnings season firing up market sentiment will be tested. The big question is whether investors will get outlooks from companies in order to navigate the equity market as expectations are important for valuation and thus future returns.


The Q1 earnings season starts today with JPMorgan Chase, Wells Fargo and Johnson & Johnson reporting earnings. For more regional flavour on US banking earnings First Republic Bank is also reporting earnings. Our focus today will be on Wells Fargo as the bank is far more main street compared to JPMorgan Chase that will do well due to solid activity in its capital market division. Wells Fargo is expected to see Q1 EPS drop by 47% compared to same period last year. But more importantly investors are hungry for outlooks.

Very few companies have made any guidance in March and many companies are scrapping their guidance for this year as they have very low visibility. And here lies the danger for the buoyant equity market. If no outlook is provided how are investors able to navigate equity markets and future profitability which leads into valuation that drives future returns?

Yesterday we published an update to our dividend model on S&P 500 based on Dec 2021 Dividend Futures which is the only liquid market we have on future profitability. Based on historic ranges of dividend yield, earnings yield and payout ratio we estimate that the S&P 500 has a 20% downside risk from current levels. In other words, sentiment is too optimistic against fundamentals.

Other important earnings releases this week are.

Wed: Citigroup, Charles Schwab, Poly Developments & Holdings, ASML, Bank of America, PNC Financial Services, Goldman Sachs, UnitedHealth, US Bancorp

Thu: TSMC, Intuitive Surgical, Bank of New York Mellon, Abbott Laboratories, BlackRock

Fri: Danaher, Honeywell, Morgan Stanley, Jiangsi Hengrui Medicine, Las Vegas Sands, East Money, Schlumberger, State Street

The recent rally in equities has been led by technology companies so this also the most important battleground in this earnings season. Investors seem to be betting on technology and online companies to fly through this global pandemic with little scars to show for. We are not buying that thesis but we may be proven wrong when technology companies are reporting earnings in the coming weeks. We believe Apple, Alphabet and Facebook are vulnerable to the slowdown in consumer and advertising spending.

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

Saxo Capital Markets HK is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo Capital Markets HK Limited holds a Type 1 Regulated Activity (Dealing in securities); Type 2 Regulated Activity (Dealing in Futures Contract) and Type 3 Regulated Activity (Leveraged foreign exchange trading) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong

By clicking on certain links on this site, you are aware and agree to leave the website of Saxo Capital Markets, proceed on to the linked site managed by Saxo Group and where you will be subject to the terms of that linked site.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

Please note that the information on this site and any product and services we offer are not targeted at investors residing in the United States and Japan, and are not intended for distribution to, or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. Please click here to view our full disclaimer.