Investors eager for earnings amid growth concerns

Investors are looking to US companies' upcoming quarterly results and forecasts about the recovery in the second half of 2021 as some worry that the recent economic surge is already waning.

US Treasuries rallied sharply this week on fears that economic growth may slow in the second half, pushing yields to levels not seen since February.

On the stock market, there was a selloff in financials, energy and other so-called value stocks, which were tied to the recovery.

US earnings growth is expected to recover from a sharp jump in second-quarter earnings and a decline in profit driven by last year's pandemic. According to IBES data from Refinitiv, earnings of the S&P 500 are projected to grow 65.8 per cent compared to a year ago.

According to IBES data from Refinitiv, this is on track to be the biggest percentage increase since the fourth quarter of 2009 since the Great Financial Crisis.

Starting Tuesday, earnings reports from JPMorgan Chase, Goldman Sachs, Bank of America and other big banks are due, kicking off the quarterly results season. They can provide early clues on stocks related to the economy and growth.

Most major US banks are expected to report a big rebound in quarterly profits, despite declining trading earnings and stalling revenues due to lower interest rates and weak demand.

Investors are also eager to assess whether earnings will support Wall Street's run higher, with the S&P 500 nearly 16 per cent for the year so far. Market watchers say that the expected jump in earnings this year is a major reason for the strong performance of the market. Yet this week a weaker-than-expected report on US jobless claims and the spread of the delta coronavirus variant added to investor questions about the economic reopening.

"As for this earnings season, what investors would like to see and what we expect is that with the earnings trend on the price side still intact, it is too early to exit this trade to support (the outlook). And It starts with this bank next week," said Keith Lerner, chief market strategist at Truist Advisory Services.

Many investors, including Lerner, remained optimistic on economically sensitive sectors such as energy, financials and industrials, which are considered value trading due to years of poor performance. The S&P 500 Price Index is down for the week.

During the same period, the S&P 500 Growth Index--known for companies with upward momentum behind them — is higher, reflecting an advance in tech stocks that was offset by a decline in benchmark 10-year note yields. Help was received.

Gary Bradshaw, portfolio manager at Hodges Capital Management in Dallas, Texas, which prefers energy, ingredients, restaurants and some retailers, said that although the picture isn't perfect across all companies, earnings season should confirm strength in the economy.

"It's not 100 per cent rosy," he said, but "we would expect earnings to be extremely strong, and so we are optimistic about the market."

Among the sectors, industry, consumer discretionary, energy and materials are expected to see the biggest gains year-over-year, with industrial estimated at over 500 per cent, based on data from Refinitiv.

Datatrack Research co-founder Nicolas Kolas wrote in a note this week that second-quarter earnings estimates are still too low.

As a result, estimates for 2021 and 2022 overall "should continue to rise as we get the Q2 financial reports," and this could give investors more confidence that earnings are going to market next year, they wrote.

Sameer Samana, senior global market strategist at Wells Fargo Investment Institute, said what will also be on the radar is what companies are doing to drive up prices as they struggle with raw materials. Signs of these pressures have appeared in economic data in recent months.

Other companies to report next week include Delta Air Lines, UnitedHealth Group and Kansas City Southern.