The earnings season is about to begin and this could be a positive catalyst for stocks

A man wearing a face mask is walking on 14 Wall Street in the financial district of New York, November 19, 2020.

Shannon Stapleton | Reuters

The revenue reporting season starts next week and is expected to be a positive catalyst that could continue to send larger stocks for the time being.

The week is also full of Federal Reserve speakers and important data, including a long-awaited inflation reading on Tuesday, when the consumer price index launches. Fed Chairman Jerome Powell begins another busy week for Fed appearances with a 60-minute Sunday night interview.

Powell, in comments last week, went on to say that the Fed will keep its light policies in place for a long time and that any rise in inflation should be temporary. But data on producer price inflation hotter than expected on Friday made the consumer price index even more important on Tuesday. The PPI gained 1%, double the expected increase.

Kevin Cummins, an American economist at NatWest Markets, said the core CPI is expected to rise 0.2% in March or 1.5% year-on-year, but general inflation is expected to reach 0. 5% or 2.5% from year to year. Cummins said March is the beginning of a period in which inflation may appear higher, only compared to last year’s low levels, when the economy closed.

“I think the Fed has already advanced,” Cummins said. He said the CPI is expected to reach 3.6% in May, but then calm down in the summer.

The other key information next week is the March retail sales report, which Cummins said could show a 10% gain.

Cummins said March sales should be boosted by the $ 1,400 stimulus checks sent to individuals, which began reaching bank accounts in mid-March. More of the economy has also opened up as more people get vaccinated.

“The end of the month should be very strong,” he said. “If you look at car sales, this has been the highest level in the last four years. It seems that restaurants are becoming more crowded with outdoor seating.”

Earnings season

But maybe the earnings season is the real indicator for the economy.

“It’s not what they’re reporting,” said James Paulsen, chief investment strategist at Leuthold Group. “For the first time, we’ll hear more and more companies commenting on the future. They’ll see some of their prospects upwards or “That’s what will be really essential in this regard.”

The big banks start reporting on Wednesday, with JPMorgan, Goldman Sachs and Wells Fargo. Bank of America and Citigroup report on Thursday. Morgan Stanley reports on Friday. PepsiCo and Delta Airlines are also among the first to report.

“Consensus for the first quarter should grow by about 22%. We have a slight comp compared to last year. That number could be closer to 30%,” said Brian Rauscher, head of global portfolio strategy at Fundstrat.

Rauscher said he expects most earnings rates to be in cyclical sectors, such as discretionary, financial and material consumers, all sectors that benefit from the reopening of the economy.

“I think the earnings season will be constructive and good enough to keep the market growing,” he said.

Based on early estimates and reports, Refinitiv now expects earnings to increase by 25% for the first quarter. The companies have exceeded the estimates so far at a rate of 81%. Earnings for the financial sector are expected to increase by 75%. The consumer discretionary sector was hit hard by the outages a year ago, and its earnings are expected to return by 98%, according to Refinitiv.

“I think what we’re going to start to see is that the operational leverage for these companies is really underestimated. Earnings are going to start coming back faster than revenue,” Rauscher said. “Corporate America has done a really good job over the last year, streamlining its operations, cost structures and everything else. Revenue could return 50%, and revenue could return 100%.”

Major stock market indices were higher last week, but small capitalizations remained with the loss of Russell 2000.

The calendar of the week before

months

1:00 pm Boston Fed Chairman Eric Rosengren

14:00 Federal budget

Tuesday

Earnings: Fastenal

6:00 am NFIB Small Business Survey

8:30 am IPC

12:00 pm Fed Group on Race and Economy – Fed Chair Atlanta, Raphael Bostic, Fed Chair Boston, Eric Rosengren, Kansas City President, Ester George, Minneapolis Fed Chair, Neel Kashkari, San Francisco Fed Chair, Mary Daly

12:00 pm Philadelphia Fed Chairman Patrick Harker

Wednesday

Earnings: JPMorgan Chase, Goldman Sachs, Wells Fargo, Bed Bath and Beyond, Infosys, First Republic Bank

8:30 Import prices

14:00 Beige book

14:30 New York Fed Chairman John Williams

16:00 Atlanta Fed Chairman Raphael Bostic

Thursday

Earnings: Bank of America, Citigroup, UnitedHealth, PepsiCo, BlackRock, Alcoa, PPG Industries, US Bancorp, Charles Schwab, Delta Air Lines, Rite Aid, Wipro, Taiwan Semiconductor, Truist Financial, SunTrust

8:30 am Initial claims

8:30 am Retail sales

8:30 Philadelphia Fed poll

8:30 Empire State Manufacturing

9:15 Industrial production

10:00 am Business Inventory

10:00 am The sentiment of NAHB home builders

11:30 Atlanta Fed Chairman Raphael Bostic

2:00 pm San Francisco President Mary Daly

16:00 ICT date

16:00 Loretta Mester, President of the Cleveland Fed

Friday

Earnings: Morgan Stanley, PNC Financial, Kansas City Southern, Bank of NY Mellon, Citizens Financial, Ally Financial, State Street

8:30 Business Leaders Survey

8:30 The house starts

10:00 am Consumer sentiment

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