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Earnings season is here. And it certainly seems like a big one. The market has rallied in 2019, with the S&P 500 already up 5%+ so far this year. So far, the earnings calendar has been favorable: financials have been the year’s top stocks after solid reports from the likes of Bank of America (NYSE:BAC) and Goldman Sachs (NYSE:GS) last week.
Already, it’s a notable change from the earnings calendar in late October and early November when even strong reports seemed to be greeted with almost indiscriminate selling. Investors simply seemed too focused on forward-looking worries about trade wars, interest rates and tariffs to be optimistic about backward-looking earnings reports.
Early indications suggest that has changed. That, in turn, sets up some optimism toward the next few weeks, when many of the market’s top stocks — and largest companies — report. For all the noise in the market over the past few months, corporate earnings still look strong. That suggests that the earnings calendar this time around could drive a further rebound in the broad market.
But for that to be the case, earnings have to cooperate. And earnings reports next week should show whether that will be the case. Several Dow Jones Industrial Average components report, but these three look like the most important. One of the market’s most widely-owned stocks will try and bounce back from a big decline. A consumer giant will try and prove that there’s value in a sector that has struggled of late. And a chip giant will try and keep the bounce in that sector going.
It’s a big week for the market — one that could determine how U.S. stocks trade for the rest of 2019.
Johnson & Johnson (JNJ)
Earnings Report Date: Tuesday, Jan. 22, before market open
Johnson & Johnson (NYSE:JNJ) has a key earnings report on Tuesday, but the numbers might not be the focus. JNJ stock still hasn’t recovered from a 10% decline last month, when a Reuters report claimed the company covered up the asbestos in its baby powder. JNJ’s market capitalization fell a stunning $40 billion in a single day — and the stock still hasn’t recovered.
Even after the declines, JNJ still has the eighth-largest market capitalization among U.S. stocks. So the response to Tuesday’s report – and management commentary about the company’s legal exposure – will move the entire market, not just JNJ.
The question is whether Johnson & Johnson, given multiple pending lawsuits, will even address the issue beyond a statement released at the time. Any response from the company likely will overshadow the numbers. But the lack of a response might do the same.
Procter & Gamble (PG)
Earnings Report Date: Wednesday, Jan. 23, before market open
Consumer packaged goods stocks have struggled of late, as margin pressures at supermarket customers and growing private-label penetration have led revenue and earnings growth to slow. But Procter & Gamble (NYSE:PG) has been bucking the trend. PG stock bounced 35% from May lows to December highs, making it one of the top stocks in the consumer space.
But PG stock has pulled back, setting up an important fiscal Q2 report on Wednesday. I’ve long been a skeptic toward P&G, and the recent run looks like too much. Growth remains modest at best, and the company’s multiple cost-cutting efforts this decade have wrung out every dollar of expense.
PG still looks dangerous at these levels — and any weakness in Q2 earnings could send the stock tumbling. The gains from May lows have moved expectations higher. It remains to be seen whether P&G can meet those expectations.
Earnings Report Date: Thursday, Jan. 24, after market close
Semiconductor stocks have benefited from the recent broad market rebound. The iShares PHLX Semiconductor ETF (NASDAQ:SOXX) has bounced about 12% off its December lows. So has chip giant Intel (NASDAQ:INTC).
For those gains to continue — for both the sector and INTC stock – Intel earnings on Thursday afternoon need to be solid. Expectations are reasonably high, with the Street looking for 11%+ revenue growth and a 13% increase in earnings per share. Given that Intel hasn’t missed consensus since Q1 2017, history suggests Intel should be able to deliver at least that type of growth.
If it does, that could be good news not only for INTC, but struggling chip plays like Nvidia (NASDAQ:NVDA) and rival Advanced Micro Devices (NASDAQ:AMD). Investors clearly are worried about a cyclical downturn in the sector. Intel can assuage those fears — and send the entire sector higher with a good report.
I still think those rivals are the top stocks to play a rebound in semiconductor stocks. But a strong earnings report from Intel might change my mind – and drive the entire chip space higher.
As of this writing, Vince Martin did not hold a position in any of the aforementioned securities.