Stocks of the coming week: We may have reached peak earnings

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But as the company prepares to announce its third-quarter results in the next few weeks, some Wall Street analysts worry that earnings growth will begin to slow. This may be the peak of the foreseeable future.

This may cause problems for investors. After all, the stock market has soared this year—mainly because Wall Street expects the profit party to continue.

Pepsi (Political public figure) The earnings season started on Tuesday with stronger-than-expected results. Wall Street giants will dominate this week’s earnings calendar.
JPMorgan (JPMorgan), Bank of America (BAC), Citigroup (C), Goldman Sachs (GS) Several other top banks will release data for the third quarter. delta (From), Dominoes (Development zone) with Walgreens (Major League Baseball) It is also available this week.

These results should be reliable. According to estimates tracked by FactSet Research Systems, the profits of S&P 500 index companies are expected to increase by 27.6% over the third quarter of 2020. However, what is worrying is that the future growth rate will decline.

John Butters, senior earnings analyst at FactSet, said in a report that the fourth quarter earnings are still expected to grow by 21.5%, but he added that the annual growth rate in the first quarter of 2022 is only 5.3%, and the annual growth rate is 9.6%. Next year’s.

Slower profits can cause problems because investors have become accustomed to the huge gains in the past few quarters. Therefore, despite the recent correction, the trading price of the stock is still above average.

Don't worry (overly) about the market crash in October

Data from FactSet shows that the current valuation of the Standard & Poor’s 500 Index is more than 20 times the profit expected in the next few months. This is higher than the 5-year average of about 18 times the profit forecast and the 10-year average of about 16 times the profit forecast.

In other words, earnings expectations may be unreasonably high, and the result may not be able to achieve considerable hype.

“For many investors, higher interest rates are only part of the broader reinflation narrative brought about by the economic growth panic, and the profitability of the S&P 500 index will be sufficient to support another rise in the benchmark index. We are not convinced. ,” Chief Executive Lisa Shalett (Lisa Shalett) Morgan Stanley Wealth Management Global Investment Office head and investment officer said in a recent report.

Shalett described the stock price as “rich” and pointed out that the company will have to deal with both “increasing costs” and “destructive competition.”

At the same time, the recent surge in long-term bond yields due to inflation concerns will not help profitability. For companies and consumers, borrowing costs are now more expensive. Shalett stated that the Fed insists that these price increases are temporary and the results may be incorrect.

“Commodity prices are rising rapidly… Financial conditions are tightening. The statement of’temporary inflation’ may also be wrong,” she said.

The world is full of cash.Not forever

However, some people pointed out that there may be room for stocks to rise, because although the price is not cheap, it is not too high.

Terry Sangwen, chief equity strategist at Bank of America Wealth Management, said in a report: “Rising earnings are supporting valuations and are also the basis for higher U.S. stocks.”

Sandven pointed out that during the Internet bubble in 2000, the trading price of the Standard & Poor’s 500 index was close to 30 times the predicted value, while its valuation during the pre-pandemic period in 2019 was approximately 28 times the predicted value.

With this in mind, he pointed out that these “lower than extreme valuations support our half-full outlook on stocks.”

A global energy crisis is approaching.There is no quick solution

The astronomical increase in natural gas prices. The cost of coal has skyrocketed. Forecast of oil price of $100.

The global energy squeeze caused by the weather and the rebound in demand is becoming more and more serious. The warning is issued before the arrival of winter, and more energy will be needed to light and heat the home. Governments all over the world are trying to limit the impact on consumers, but admit that they may not be able to stop the bill from soaring.

In China, residents’ rotating power outages have begun, while in India, power stations are scrambling for coal. Consumer advocates in Europe have called for a ban on disconnection when customers cannot resolve their debts in a timely manner.

“This price shock is an unexpected crisis at a critical moment,” EU Energy Director Kadri Simson said last week. “The top priority should be to reduce the social impact and protect disadvantaged families.”

According to data from the Independent Commodity Intelligence Corporation, in Europe, the price of natural gas in oil terms is currently equivalent to US$230 per barrel, which has risen by more than 130% since the beginning of September, which is more than eight times the service rate of the same period last year.

The latest sign of trouble? China has ordered its coal mines to increase production.

According to the state-owned Securities Times and China Securities News, citing a document from the Inner Mongolia Energy Administration, the Inner Mongolian authorities have asked 72 mines to increase production by 98.4 million tons.

According to recent government data, this figure is equivalent to about 30% of China’s monthly coal production.

Next

Tuesday: U.S. job vacancies

Wednesday: US Consumer Price Index; EIA crude oil inventories; JPMorgan Chase, BlackRock, and Delta Air Lines earnings

Thursday: U.S. producer price index and jobless claims; income from Bank of America, Citigroup, Morgan Stanley, TSMC, UnitedHealth, Walgreens Boots Alliance, Wells Fargo and Alcoa

Friday: US retail sales; income from Goldman Sachs, Truist, and PNC

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