Wobbly Wednesday? US Earnings Preview

The US government has ordered a pause to administering Johnson & Johnson’s Covid-19 vaccine. On a separate note, the US inflation figures came in higher than expected.

Still, the S&P 500 climbed 0.33% while the Nasdaq 100 advanced by 1.2%, with both indices boosted by the likes of Tesla, Nvidia, and Apple. The Dow Jones index however ended the latest cash session lower by 0.2%, which means we’ll have to wait a bit more before we can witness 34,000 Dow.

US equity futures are holding relatively steady as the next earnings season kicks off today.

The Wall Street 30 minis are trying to ease away from overbought territory, ready to relaunch higher when the next opportunity arises.

Banks first on the roll call

Financial heavyweights are first out of the earnings gates today:

• JPMorgan
• Goldman Sachs
• Wells Fargo

Note that financial stocks have been the second-best performing sector on the S&P 500 so far this year, having climbed by 18.5% year-to-date as markets pin their hopes on the US economic recovery. However, according to FactSet, less than 50% of analysts have a Buy rating on financial stocks heading into the second quarter. Perhaps some of that pessimism stems from the looming tax hikes and tougher regulations under the current US administration.

Still, for the S&P 500 as a whole, this is set to be a bumper earnings season.

Markets would want to see whether some of these estimates, as gathered by FactSet, actually prove true:

• Record high increase in EPS (earnings per share) estimates of 6%
• Highest earnings growth in over 10 years of at least 28%

Already, about 60 S&P 500 companies have issued positive guidance for EPS and sales, with that 60 tally already being a record high. Such has been the optimism leading up to the earnings announcements.

“Ultimately, market participants will remain primed to the earnings outlook for the rest of the year, amid the expected economic recovery. Such corporate commentary could determine whether the S&P 500 should soar higher from current levels, even though a pullback from overbought levels appear warranted in the near future.”

Vaccine woes unlikely to dampen risk appetite … for now

Markets have been willing to ignore Johnson & Johnson’s vaccine pause for the time being, nothing the shots by J&J represent only 3.6% of the near-190 million shots delivered in the US so far. Also, the pause may be lifted in a matter of days.

“However, if such concerns escalate and become material enough to derail the economic recovery, that may trigger a pullback in risk assets.”

For Johnson & Johnson’s stock itself, should the 100-day simple moving average (SMA) hold steady as a support level, as it did back in early March, that could help its share price bounce back when its single-shot vaccines can be administered once more. The longer the wait, perhaps the stronger the weakening bias for the stock in the interim as shareholders patience wears thin.

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