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Key Takeaways From The First Week Of Earnings Season

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Third-quarter earnings season has started, and the pace will only pick up over the next two weeks (check out Seeking Alpha’s excellent summary of upcoming catalysts). While it is too early to reach definitive conclusions about the performance of Corporate America in the current period, a few early takeaways can probably be already drawn.

Today, I briefly share with Seeking Alpha readers what I have seen of earnings season so far.

grayscale photo of Wall St. signage

Credit: Patrick Weissenberger

Bird’s Eye View

First, let’s take a bird’s eye view of the whole earnings period. According to FactSet, analysts project a YOY drop of about 20% in the S&P 500’s earnings. To be fair, this estimate is likely to be off (possibly too conservative, as was the case in the second quarter) since guidance has become a thing of the past in 2020, and analysts have had less reliable points of reference to use in their projections.

In both the financial service and airline spaces, companies have posted EPS well ahead of consensus, with United Airlines (NASDAQ:UAL) being the only exception that I can quickly pull from memory. However, share price reactions to these earnings beats have been mixed at best, suggesting that investors are probably more concerned about the future than they are excited about past results that have been “less disastrous than expected”.

Source: FactSet

Wall Street vs. Main Street

Banks continue to face a similar dynamic observed in the second quarter. Wall Street has been doing great, while Main Street shows increasing signs of weakness. Underwriting fees have been strong, especially due to a white-hot IPO market. Sales and trading revenues do not look bad either, although the institutional business in general has lost some momentum compared to an outstanding second period of 2020.

See chart below depicting the strong performance of each major bank in the key institutional sub-segments.

Source: DM Martins Research, data from multiple reports

Any bank that is more heavily exposed to interest income and the consumer vertical has been suffering more. Among Big Banks, Citigroup (NYSE:C) failed to impress, while JPMorgan (NYSE:JPM) stood out for its solid execution once again. I have to think that regional banks and pure-play consumer banks like Capital One (NYSE:COF) will have the hardest time impressing investors in the third quarter, although mediocre performance may have already been priced into these stocks.

Still in consumer banking, it has caught my attention that revolving loan balances have been dropping sharply (down low teens on average, see chart below), while deposits have been climbing fast (nothing new here). These are the telltale signs that consumers are or have been shifting to defense mode now that the extra unemployment payments have decreased and the next fiscal stimulus package remains a big question mark.

Source: DM Martins Research, data from multiple reports

The Endless Pain in Airlines and Energy

In airlines, the picture looks terrible across the board. Delta Air Lines (DAL) and United have delivered revenue declines of at least 75% that lagged consensus by a bit. The latter has been bragging that its third-quarter revenue metrics will basically be “less worse” than those of the other two legacy carriers, which is a sad badge of honor.

All that investors seem to care about is cash burn (see chart below on the legacy carriers), as they expect a long winter in the airline space. And I am not talking only about the December-to-March cold season, but a deteriorated landscape for the entire industry over the next several quarters.

Source: DM Martins, data from multiple resources

The other sector that continues to struggle, with no clear end to the pain in sight, is the energy space. To be fair, only Schlumberger (SLB) in the oil and gas services industry has weighed in on third-quarter performance so far. But I would be surprised to see a different narrative emerging from the rest of the biggest names in the sector.

The name of the game for now and likely for the next several quarters is aggressive cost containment and cash preservation. Investing in this theme only makes sense, in my view, in the case of hardcore bargain-hunters who do not mind sitting patiently on their positions and enduring quite a bit of volatility in the foreseeable future.

Beating the market by a mile

Stocks have been on a very choppy ride in the past several weeks, and the future looks even more uncertain. But my All-Equities SRG portfolio has been beating the S&P 500 in 2020 and since inception, while also producing far superior risk-adjusted returns. To find out how I have created a better strategy to growing your money in any economic environment, click here to take advantage of the 14-day free trial today.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.





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Dow Suffers Worst Week Since March as Tech Loses Lustre By Investing.com

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© Reuters.

By Yasin Ebrahim

Investing.com – The Dow cut losses into the close Friday, but posted its worst week since March as technology slipped on weaker quarterly earnings, while rising Covid-19 infections prompted investors to abandon their bullish bets on stocks.

The fell 0.59%, or 157 points, and is down 11% from its September highs. The fell 1.15%, while the slumped 2.45%.

Tech, which has been leading the broader market rebound since mid-March, is in the selling spotlight as investors mulled a string of quarterly results from FAANG stocks, excluding Netflix (NASDAQ:).

Apple (NASDAQ:) fell 6% after its weaker-than-expected iPhone sales overshadowed third-quarter results that beat on both the top and bottom lines. Amazon.com (NASDAQ:)’s third-quarter results also beat Wall Street estimates, but its underwhelming guidance sent its shares 5% lower.

Facebook (NASDAQ:) slumped 6%% after a fall in user additions, but Wall Street continued to back the stock as the social media giant is expected to benefit from the ongoing “shift of ad spending to digital outlets,” Wedbush said in a note.

Google-parent Alphabet (NASDAQ:), however, sidestepped the selling, closing 4% higher as investors cheered signs of a rebound in ad-spending as the search engine giant reported third-quarter results that topped analysts’ estimates.

Twitter Inc (NYSE:) plunged 21% after bucking the trend of sharp user growth seen from other social platforms including Snapchat during the quarter, adding just 1 million users since the end of the second quarter.

Energy cut its losses to end positive as oil major Exxon Mobil (NYSE:) pared some intraday weakness following disappointing quarterly results.

The biggest one-day slump on Wall Street since the pandemic began in mid-March comes ahead of the U.S. election on Nov. 3 and as the spread of the virus continues to gather pace.

“[I]t is very unlikely that the economy will so easily continue along on an uninterrupted positive trajectory, particularly if a resurgence of the virus undermines the progress made July to September,” Stifel Economics said in a note.

The likely resurgence of the virus in the winter could potentially lead to “further restrictions or regulations will only serve to complicate the outlook for the global recovery, domestic GDP, policy and, of course, next week’s election.”

On the stimulus front, House Speaker Nancy Pelosi said she remains at odds with the White House on addressing differences concerning the stimulus package. 

Pelosi said she expects Congress “certainly will have something [done] at the start of the new presidency,” though did “not want to have to wait that long, because people have needs,” according to MSNBC.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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U.S. stocks lower at close of trade; Dow Jones Industrial Average down 0.59% By Investing.com

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© Reuters U.S. stocks lower at close of trade; Dow Jones Industrial Average down 0.59%

Investing.com – U.S. stocks were lower after the close on Friday, as losses in the , and sectors led shares lower.

At the close in NYSE, the declined 0.59% to hit a new 1-month low, while the index fell 1.21%, and the index fell 2.45%.

The best performers of the session on the were International Business Machines (NYSE:), which rose 2.52% or 2.75 points to trade at 111.66 at the close. Meanwhile, Walgreens Boots Alliance Inc (NASDAQ:) added 1.55% or 0.52 points to end at 34.04 and Caterpillar Inc (NYSE:) was up 1.55% or 2.39 points to 157.06 in late trade.

The worst performers of the session were Apple Inc (NASDAQ:), which fell 5.57% or 6.42 points to trade at 108.90 at the close. Boeing Co (NYSE:) declined 2.64% or 3.91 points to end at 144.38 and Nike Inc (NYSE:) was down 2.21% or 2.71 points to 120.15.

The top performers on the S&P 500 were Mohawk Industries Inc (NYSE:) which rose 11.14% to 103.42, ResMed Inc (NYSE:) which was up 7.01% to settle at 192.10 and Molson Coors Brewing Co Class B (NYSE:) which gained 5.69% to close at 35.28.

The worst performers were Twitter Inc (NYSE:) which was down 21.13% to 41.35 in late trade, Archer-Daniels-Midland Company (NYSE:) which lost 7.33% to settle at 46.26 and Western Union Company (NYSE:) which was down 7.03% to 19.43 at the close.

The top performers on the NASDAQ Composite were Marine Petroleum Trust (NASDAQ:) which rose 37.40% to 3.380, BioLineRx Ltd (NASDAQ:) which was up 35.14% to settle at 2.000 and Tricida Inc (NASDAQ:) which gained 28.83% to close at 5.63.

The worst performers were Axovant Gene Therapies Ltd (NASDAQ:) which was down 41.64% to 2.13 in late trade, Bellicum Pharmaceuticals Inc (NASDAQ:) which lost 36.78% to settle at 3.730 and Intec Pharma Ltd (NASDAQ:) which was down 25.23% to 2.3000 at the close.

Falling stocks outnumbered advancing ones on the New York Stock Exchange by 1893 to 1041 and 82 ended unchanged; on the Nasdaq Stock Exchange, 1996 fell and 789 advanced, while 54 ended unchanged.

Shares in Intec Pharma Ltd (NASDAQ:) fell to 52-week highs; down 25.23% or 0.7760 to 2.3000.

The , which measures the implied volatility of S&P 500 options, was up 1.14% to 38.02.

Gold Futures for December delivery was up 0.57% or 10.70 to $1878.70 a troy ounce. Elsewhere in commodities trading, Crude oil for delivery in December fell 1.11% or 0.40 to hit $35.77 a barrel, while the January Brent oil contract fell 0.97% or 0.37 to trade at $37.89 a barrel.

EUR/USD was down 0.21% to 1.1649, while USD/JPY rose 0.06% to 104.67.

The US Dollar Index Futures was up 0.06% at 94.037.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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Big tech stocks may face post-election headwinds, no matter who wins By Reuters

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© Reuters. People wearing protective face masks walk outside New York Stock Exchange in New York

By David Randall and Svea Herbst-Bayliss

NEW YORK (Reuters) – Some investors are betting the technology and communications stocks that drove a massive rebound in U.S. markets this year will face a tougher slog in coming months, no matter whether Republican President Donald Trump or Democratic challenger Joe Biden wins Tuesday’s election.

Betting against big technology has been a risky proposition over the last decade, as stocks like Amazon, Google and Netflix (NASDAQ:) have shot higher at the expense of so-called value and cyclical stocks such as banks and energy companies.

Recently, however, some fund managers say they are growing alarmed by what they see as a consensus in Washington to tighten regulations, and prospects that another large stimulus bill would bolster a rotation out of tech and into other sectors including economically sensitive value stocks.

“There will be a shift and it is starting, but it will take time,” said Max Gokhman, head of asset allocation at Pacific Life Fund Advisors, which cut its exposure to large-cap tech in September to neutral from overweight.

Should Biden win as polls suggest, technology companies could face higher tax rates and tax-motivated selling as well as increased regulation, investors said.

Both Trump and Biden have criticized large tech companies but stopped short of explicitly calling for them to be broken up. Trump has said “there is something going on in terms of monopoly” when asked about big tech firms.

Apple Inc (O:), Microsoft Corp (O:), Amazon.com Inc (O:), Facebook Inc (O:), and Google-parent Alphabet Inc (O:) now make up approximately 23% of the total weight of the S&P 500, according to S&P Dow Jones Indices, giving their gyrations an outsized impact on broader markets.

Hedge fund manager David Einhorn of Greenlight Capital, a longtime tech bear, told clients in a letter this week that tech stocks were in the middle of an “enormous bubble” that popped when the S&P 500 hit its record high on Sept. 2, 2020.

Technology stocks tumbled in the past week’s selloff, though earnings results from companies like Facebook, Alphabet and Amazon have shown how the tech giants expanded their businesses this year.

“It has become more difficult for mega-cap tech to surprise on the upside,” analysts at UBS Global Wealth Management said in a note Friday.

Some investors pointed to recent hearings in Washington as a sign that increased regulations will come to the sector no matter which party takes control in Washington.

The Justice Department’s lawsuit against Google in late October marked the first time the U.S. government has cracked down on a major tech company since it sued Microsoft Corp MSFT.O for anti-competitive practices in 1998.

“This may be the only bi-partisan issue out there,” Pacific Life’s Gokhman said.

An expected $2 trillion stimulus package by Biden, who leads Trump in national polls by 10 percentage points, could enhance the appeal of out-of-favor stocks like construction equipment and materials companies, investors said.

A shift to value stocks “is increasingly likely over the next 12 months,” said Eduardo Costa, who runs hedge fund Calixto Global Investors, LP.

Calixto, which invests largely in technology, media, and telecom stocks, has returned 30% since January, an investor said.

Potentially higher taxes under a Biden administration are another worry. Biden has proposed increasing the corporate tax rate to 28% from 21%, potentially weighing on companies’ earnings.

A separate proposal to tax capital gains and dividends as ordinary income could prompt some investors to sell winners in order to lock in lower tax rates, analysts said.

Brian Jacobsen, senior investment strategist at Wells Fargo (NYSE:) Asset Management, said his firm has been underweighting the and is moving more of its portfolios into cyclical stocks with more compelling valuations, especially industrials.

“We’ve done some scenario analysis and thinking through various permutations of who controls Congress and the White House and our general view is that it might not matter all that much,” he said.





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