Wall Street Q3 earnings season begins this week!

Wall Street earnings season for the third quarter of 2021 begins this week! Investors will be offered reports from the large US banks that will serve as a hint at a condition of the US economy. Investors will look for signs of an inflection point in credit growth. Looking outside of the banking sector, supply chains are emerging as a top issue for companies. Take a look at our quick preview of the upcoming US earnings season!

Expectations

Market expectations for the upcoming earnings season are high. Earnings growth for the S&P 500 is expected to reach 27.6% year-over-year while sales are projected to be 14.9% higher than a year ago. Nevertheless, it should be noted that the base period - third quarter of 2020 - was still to a huge extent impacted by disruptions related to Covid-19 pandemic, which explains a large part of the expected double-digit growth rates.

Energy companies are set to report the biggest improvement compared to a year ago out of all sectors. It should not come as a surprise given how much the prices of oil or natural gas increased over the past year. Companies from the materials sector - like for example chemical companies or miners - are also expected to show big year-over-year improvement in business. On the other hand, airlines are expected to once again report a Q3 loss but it is forecast to be much smaller than in 2020.

US500 (S&P 500 futures) failed to sustain a break above the 50% retracement of the recent downward correction last week. Index began to erase gains and is now trying to break below the price zone ranging around 4,360 pts handle, marked with previous local highs. Should bulls manage to defend the area, another upward impulse may be generated. In such a scenario, the upper limit of the Overbalance structure near 61.8% retracement (4,438 pts area) will be a key target for buyers. Source: xStation5

Top issue? Supply chains

While reports from Wall Street banks are often seen as the beginning of the earnings report, it is not the case actually. Companies that have reporting periods not aligned with calendar quarters (for example June-August or May-July) often report earlier and those reports offer early hints on how business developed in, at least part of, the third quarter of the year. A little over 20 S&P 500 companies have reported their reports so far and over 70% of them mentioned supply chain disruptions as one of the biggest issues. Note that consumer products companies, like PepsiCo or Constellation Brands, dominate among those 20 or so companies that have already reported. Having said that, those mentions are more likely related to logistics issues or shortages on the packaging market rather than an issue that is being labelled as one of the biggest risks to global growth - semiconductor shortage. Warnings over a negative impact of semiconductors are yet to come.

Supply chain issues and labor shortages are among top concerns of US companies. Source: FactSet

Banking earnings

However, before we get to hear from US tech companies and automakers that may have been impacted by semiconductor shortages, investors will be offered financials from companies that play a vital role in the US economy - banks. Shares of Wall Street banks performed well as expectations over Fed policy tightening increased. However, Q3 financial results are expected to be burdened with high costs. Data from the Federal Reserve showed that loan growth was slightly lower than 1% quarter-over-quarter in Q3 2021. However, high frequency data begins to suggest that an inflection point in loan growth may be looming and that credit action will accelerate in the US. This is one of the things to watch while analysing US banking earnings.

Calendar for this week

As we have said earlier, US banks will be one of the first to report Q3 financial results. Investors will be offered reports from top Wall Street banks this week:

• Wednesday - JPMorgan (JPM.US)

• Thursday - Citigroup (C.US), Morgan Stanley (MS.US), Wells Fargo (WFC.US)

• Friday - Goldman Sachs (GS.US)

Apart from banks, BlackRock (BLK.US), the world largest asset manager, will report earnings this week (Wednesday, October 13) as well as Walgreens Boots Alliance (WBA.US), a US retail pharmacy chain, and Unitedhealth Group (UNH.DE), a US healthcare company (Thursday, October 14). Walgreens and Unitedhealth are both members of the Dow Jones index

Top US earnings reports this week. Source: XTB, Bloomberg