Markets head into a busy week of earnings with a bit of uncertainty around whether the major companies out there will help continue the momentum in the stock market that was regained last week after some weeks of lackluster trading.
As put in Reuters’ Wall Street Weekahead, there’s something for everyone this week, from the old-line tech companies like Microsoft that have been the recent beneficiary of the switch away from the high-flying names like Netflix and Facebook (which also report this week) to some big industrial names like General Motors – which has plenty of its own issues with the recall – to Dow components like AT&T and McDonald’s.
So far, earnings have been a mixed bag. There have been some good results from a few Wall Street banks, weak numbers from others, and results out of the likes of IBM and Google that fell short of expectations as well. The fact that old tech names like Microsoft and Cisco are up on the year even as the Twitters of the world are down on the year does suggest more attention to alpha generation in a way that didn’t exist in 2013.
With that in mind strategists for the most part have been trying to point more specifically to stocks that appear undervalued or at least less-loved by the analyst community. Three of those reporting this week are Microsoft, DuPont and Travelers, which Credit Suisse quantitative strategists identified as contrarian picks as analysts in general have been more enamored themselves of the momentum stocks that carried the day in 2013.
All three of those, as well as a few others, will report in a week that will see about one-third of S&P 500 names report for the quarter. But what will be interesting again to see (and here we are again in the equity market looking ahead to the future) is whether second-quarter growth figures recede or if they’ve hit a trough earlier than is usual, which may be happening. After Friday’s spate of generally strong results, second quarter year-over-year earnings growth estimates ticked up to 8.1 percent from 8.0 percent. That’s still down from 8.4 percent at the beginning of April, and much more than on January 1, but if it represents the nadir for this period, that’s a good sign for those concerned about long-term growth in stock prices and for economic demand.
A number of sectors have seen a generalized improvement in their estimates (consumer discretionary stocks are still seeing estimates cut), which points at least to optimism going forward. Dan Greenhaus of BTIG notes that a handful of notable names have seen strong year-over-year revenue growth including Baker-Hughes, United Rentals, Pepsico, and Sandisk. The latter cuts against the grain of those forecasting weak results from companies with large Chinese exposure.
Make no mistake, earnings will dominate the week. Here are a few other names coming to whet one’s appetite: Gilead Sciences, Amgen, Alexion, and Celgene, all biotech names that have been favorites at one time or another, and of course Apple, the largest U.S. company by market value. If year-over-year expectations improve by the end of the week, that’s certainly a promising sign for the current quarter we’re living in.