First Full Week Of Q1 Earnings

Earnings focus will be less on Q1 and more focused on what's ahead

Author

Mark Roussin
April 17, 2023

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Market Talk ⏪

A few of the Big Banks (JPMorgan Chase, Wells Fargo, and Citibank) got things officially started for the Q1 earnings season on Friday. The earnings from those banks were pretty solid, yet it did not seem to move the market much to end the week on Friday.

During the week, the Dow Jones Industrial was the big winner, with the index up over 1% on the week. In fact, all three major averages were green during the week. The Dow Jones has seen a nice run over the past few weeks, as it was lead by UnitedHealth Group, which is the indexes largest weighting. For those of you unaware, the Dow Jones, unlike the S&P 500 and Nasdaq, is a price weighted index, meaning the holdings with the largest price per share carry the most weight. At a stock price above $500, UNH is the largest weighting, and over the past six weeks, the health insurance giant has enjoyed weekly gains in each of those. On Friday though they reported earnings, even raising their outlook for 2023, but that was not enough for investors as the stock dropped over 3% during Friday’s session.

This week kicks off the first full week of earnings and I believe investors will be less concerned with the Q1 results and more concerned with the 2023 outlooks that company’s are expected to revise or release for the first time. Expectations continue to come down, but there could be even more downward revisions, which if that happens, the valuation around stocks looks even more overvalued. Right now analysts have earnings expectations of around $220 per share ( I believe it should be closer to $200), which pegs the S&P 500 at a valuation of 18.8x on a forward looking basis. If those estimates drop closer to $200, the valuation jumps up to over 20x. Historically, the S&P 500 has traded closer to 15x-16x, so a sizable gap to where we currently sit.

Banks will be a major focus as investors will be looking at deposit numbers (are deposits running to larger banks) and also take a look at their loan loss reserves. Loan loss reserves are where banks set aside money preparing for a percentage of their loans to default. This could indicate both a weakening consumer as well as a weakening economy.

In addition, we still have the Federal Reserve hovering over the market and could be looking to yet again hike interest rates after we received CPI data showing inflation being stubborn.

This week we will also get some updated stats regarding the housing sector. We will see new data on housing starts and building permits on Tuesday, followed by Existing homes sales data on Thursday. I am expecting additional weakness due in large part to rising interest rates, which have slowed the sector considerably over the past year.

If you are an investor with individual positions, it will be important to stay on your toes as we navigate through this period of earnings.

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US Markets 🇺🇸

Here is a performance summary for US Equities:

Here is a look at US Treasuries:

The Fear & Greed Index measures market sentiment based on the following seven factors: put/call ratios, junk bond demand, stock price breadth, market volatility, stock price strength, safe-haven demand, and market momentum.

When it comes to the Fear and Greed Index, we have seen the markets move back into the green and subsequently, the Fear & Greed Index has climbed to Greed levels quite quickly, after being in a position of fear just a few weeks ago. Currently, the index has a reading of 68, which is slightly up from the prior week reading of 57.

Earnings on Deck 💰

The first full week of Q1 earnings season is officially here, and a few big banks kicked off the party last week. Here are the slew of earnings reports for the week:

Dividend News 📝

Here are some notable analyst upgrade/downgrades from the previous week:

  • Goldman Sachs removes Norfolk Southern from the conviction buy list

  • Northcoast upgrades McDonald’s to buy from neutral

  • Morgan Stanley names Taiwan Semiconductor a catalyst driven idea

  • Morgan Stanley names UnitedHealth Group as a Top Pick (interesting call to make last week PRIOR to its earnings release)

  • UBS upgrades Goldman Sachs to buy from neutral

  • Wolfe upgrades Raytheon to outperform from peer perform

  • Baird downgrades Lockheed Martin to neutral from outperform

  • Citi upgrades Merck & Co to buy from neutral

  • William Blair initiates Costco as outperform

This Week 📆

Monday

  • Empire State manufacturing index

  • NAHB Housing Market Index

Tuesday

  • Housing Starts and building permits

Wednesday

  • New York Fed President John Williams speaks at New York University

Thursday

  • Jobless claims

  • Philadelphia Fed manufacturing index

  • Existing home sales

  • Philadelphia Fed President Patrick Harker speaks on the economic outlook

Friday

  • S&P Global U.S. composite PMI

Other Resources 📺

If you have not done so yet, definitely check out my growing YouTube community where I publish weekly videos on Dividend Stocks I am looking at.

Here is a look at my latest video: Skip JEPI and Buy These 3 Dividend ETFs.

Here is the other video I published last week: 2 REITs Down Over 20% Worthy of a Buy:

Lastly, in this video, The Power of Dividend Investing, you can learn how Dividends can build wealth:

Here are a few others of my latest videos:

If you enjoyed the newsletter, leave a LIKE and COMMENT down below. Also, if there is someone that could benefit from this newsletter, consider sharing it.

Have questions? You can email me directly at [email protected].

Happy Investing!

Mark

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