These Key First-Quarter Earnings Reports Are Coming in This Week -- ICYMI

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Investors have taken an indifferent posture to earnings results in 2020, but several companies soon to report could mark an important point in 2020’s stock market campaign in the U.S. 

The S&P 500 is now only 14.8% below its all-time high, although it has been almost stuck since April 9. From March 23, the bear-market low, to April 9, the S&P 500 roared 24%. Investors had digested historically ugly economic data and large earnings declines year-over-year across several sectors. Now, the average 2020 earnings multiple on the S&P 500 is roughly 20, far higher than the long-term historical average of below 18. Investors see a rebound of earnings in 2021 as strong and likely, as lockdowns ease and the spread of coronavirus decelerates. 

But since April 9, an equal-weighted look at the S&P 500 show the index is down. The actual move of the index, up roughly 1%, has come on the back of mighty big tech. Investors have camped out in shares of Amazon  (AMZN) - Get Report, Microsoft  (MSFT) - Get Report, Alphabet  (GOOGL) - Get Report, Netflix  (NFLX) - Get Report, Apple  (AAPL) - Get Report and Facebook  (FB) - Get Report. Largely, although not fully, these stocks have secular growth drivers that can cut through the negative impact of the virus-induced recession. These stocks have risen by many times the percentage point gain on the S&P 500 since April 9. 

Strategist across Wall Street firms – both buy-side and sell-side -- say a near-term pullback amid virus and economic uncertainty could certainly be in the cards. Morgan Stanley’s Chief U.S. Equity Strategist Mike Wilson says the S&P 500 should meet strong resistance in the near-term at 2,900, which it touched Tuesday morning, before quickly retreating. 

Netflix, which seemed priced for perfection into earnings, saw double the number of net global subscribers added as analysts had expected. But the stock was priced for perfection and revenue results and guidance didn’t impress. In the face of lower average revenue per user as new subscribers sign up for cheaper plans, the stock has gone sideways since. 

Amazon, Microsoft, Apple, Google and Facebook all now trade at valuations on the upper side of their ranges of the past few years. 

Amazon investors expect strong e-commerce sales, especially in groceries and essentials, as well as strong cloud adoption to far outweigh a questionable discretionary picture. Apple investors are eagerly awaiting management commentary on the timing of the pushed-back 5G device launch date. Maybe services revenue can come to the rescue. Microsoft is likely a net beneficiary of the accelerated shift to enterprise cloud services in the work-from-home environment, many analysts say. But these stocks are no longer priced cheaply. 

Here’s when they report:

  • Microsoft: Wednesday, April 29
  • Apple: Thursday, April 30
  • Amazon: Thursday, April 30

If these stocks can’t maintain traction, the market may lose its recent leadership.

Oil is an important consideration for the broader market as well. Demand falling off a cliff from the virus, an OPEC supply cut of 9.7 million barrels per day that doesn’t stand a chance against falling demand and producer’s inability to find more storage space for landlocked oil have pushed crude oil down 80% year-to-date to $12.50 a barrel. That’s a level that puts smaller and heavily indebted oil companies at risk of bankruptcy if prices can’t son recover. 

The U.S. is home to many small and midsize oil producers and is a larger exporter of the substance that it has been in past years. Many are afraid that bankruptcies or mere labor cuts would put meaningful pressure on U.S. employment, which is already likely headed above 15% in the next few weeks. 

Here are the small oil companies reporting earnings soon:

Diamondback Energy  (FANG) - Get Report: May 4

Occidental  (OXY) - Get Report: May 5

Marathon Energy  (MRO) - Get Report: May 6

Apache  (APA) - Get Report: May 6

Here are the big oil producers still to report: 

Chevron  (CVX) - Get Report: May 1

Exxon Mobil  (XOM) - Get Report: May 1 

The keys to watch from a broader market perspective: cuts to capital expenditures and labor in the face of falling demand and dividend cuts in the face of falling earnings and cash flow. 

Oil stocks have roared back, some of them more so than the broader market, as many expect a roughly three-fold rebound in oil prices by the end of the year. 

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