As the second quarter of the year has come to an end, the time has come for companies to publish quarterly financial reports. As usual, earnings season on Wall Street will begin with publication of earnings reports from major US banks. Earnings and sales growth is expected to be massive but one should keep in mind that pandemic-hit Q2 2020 provided a very low base. Let's take a look at what the market expects and what to focus on during the first week of Wall Street earnings season.
Overview
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Create account Try a demo Download mobile app Download mobile appThe upcoming earnings season will be unusual. Why? Results for Q2 2021 will be compared to Q2 2020 and it was the quarter that was hit by the pandemic the most. As a result, US companies are expected to report gargantuan year-over-year growth rates. Earnings estimates point to a massive growth of 63.6% year-over-year while revenue is seen rising 19.6% above Q2 2020 levels. Year-over-year growth metrics were often ignored by investors, who focused on market expectations as a benchmark, and the extremely low base effect from a year ago is unlikely to change during this quarter's earnings season. Banks will dominate the first week of the earnings season while the second week (July 19-23) will be dominated by reports from US tech companies, like Netflix (Tuesday, July 20), Tesla (Thursday, July 22) or Microsoft (Thursday, July 22)
All 11 sector subindices from the S&P 500 index are expected to report higher year-over-year earnings. Energy sector, especially oil companies, are expected to show the largest year-over-year increases. This should not come as a surprise given that oil prices dropped below zero during Q2 2020! Another groups of stocks that are expected to show massive improvement are stocks that were heavy hit by the pandemic - airlines as well as restaurants and hotels.
Banks launch earnings marathon
As it is usually the case for Wall Street earnings season, US banks will be the first to report results. There are two things to watch in banking announcements. Firstly, how trading copes. Trading activity was a major driver of solid earnings in recent quarters and investors want to see whether bonanza continued. This is especially important as interest rates remain low and trading becomes an increasingly important source of business for banks. Secondly, traders will focus on dividend announcements. The Federal Reserve has recently lifted restrictions on banking dividends and buybacks, boosting investors' sentiment towards the sector.
Banks dominate the earnings calendar for the next week. Source: Bloomberg, XTB Research
Technical Analysis
Even though the upward trend on major US banks has slowed, there has not been a trend reversal yet. Recently the price of Bank of America stock (BAC.US) bounced off the key support at $38.70, which coincides with the lower limit of the 1:1 structure, the 23.6% Fibonacci retracement and the EMA-100. Source: xStation5
The technicals of the Goldman Sachs stock (GS.US) look similar as bulls managed to defend the support zone resulting from the 1:1 structure near $355. According the the Overbalance methodology, the trend remains upward as long as the price sits above this level. Source: xStation5
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