There will be lots and lots of head-scratching going on this week on the cause of last week’s drop in U.S. stocks. Causation is important here for all of us who are trying to figure out whether this was the start of something big or if the 3.85% drop for the Standard & Poor’s 500 index from the high is just a short-term correction.
This market remains determined to rally as we head into earnings season. Look no further than the reaction to earnings from Netflix (NFLX) for evidence. The stock market could have reacted to yesterday’s earnings from Netflix (NFLX) by selling down the shares. Could have. But didn’t.
Before Washington and the government shutdown stole all the headlines, the U.S. stock market was whipping up a good deal of enthusiasm about reports of fourth quarter earnings. Because the Securities & Exchange Commission gives companies more time to file end of the year annual financial reports than run of the mill quarterly reports, earnings season for the fourth quarter is especially drawn out, but we still get some important bellwether reports this week
Certainly no one cheered this morning when Bank of America and Goldman Sachs announced big one-time hits from the recently passed tax bill, but as with JP Morgan Chase and Wells Fargo last week, the big deal for investors was what these huge financial institutions had to say about future quarters. And on that Bank of America and Goldman Sachs delivered differing degrees of optimism
Another week dominated by bank earnings reports will give traders and investors time to get really excited about the shift to earnings reports from other sectors in the week that begins on January 22. The big fourth quarter earnings reports for this coming week are Citigroup (C) on Tuesday (remember the market is closed on Monday for Martin Luther King’s birthday), Bank of America (BAC) and Goldman Sachs (GS) on Wednesday, and then finally some non-financial stocks on Thursday and Friday with IBM (IBM) and Schlumberger (SLB).
Going into earnings this morning from JPMorgan Chase (JPM) and Wells Fargo (WFC) what I wanted was an indication as to whether or not the stock market would care about the billions in one-time write offs that these banks would report for the fourth quarter due to the recently passed tax bill. That’s important because this one-time charge will show up on the earnings reports of other banks, of technology companies, and of big drug makers. On the early evidence today, the market doesn’t and won’t care.
Traders and investors will spend the first few days after the New Year’s holiday catching up on random news and getting ready for the start of earnings season.
A very heavy week for earnings will reach a crescendo on Thursday, November 2 with reports from Alibaba and Apple. The excitement isn’t surprising after the huge earnings that Amazon (AMZN), Alphabet (GOOG), Microsoft (MSFT), and Intel (INTC) delivered this past Thursday, October 26. This week Facebook (FB) is the Wednesday, November 1, Â warmup act.
Before AMD’s earnings report on October 24, traders had speculated that the company’s earnings would be a useful indicator for what Nvidia (NVDA) would report on November 9. After all, the two companies do compete in some of the same markets with processors for gaming, and servers, and, increasingly for chips with parallel architectures used in artificial intelligence and autonomous driving applications. But AMD dropped almost 11% after it reported. Does that have any significance for Nvidia?
