Stock week ahead: Physical earnings don’t look very good. But the thirst may soon be over

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Big banks Chase JPMorgan (JPM), Wells Fargo (WFC) and Citigroup (C.) Friday’s report results showed that there are still concerns about the impact of the pandemic on consumer and small business behavior. Delta (DAL) also recorded a loss last week when ground coronavirus was stopped.

According to estimates from FactSet Research, companies in the S&P 500 are expected to report that their profits fell by about 7% in the last three months of 2020 compared to the fourth quarter of the previous year. That, however, should be at the end of the thirst for employment.

FactSet senior employment analyst John Butters told CNN Business that S&P 500 profits should rebound in the first quarter, with analysts predicting a nearly 17% year-over-year jump in the first quarter and an increase of more than 46% in the second quarter. For the full year, Butters said profits should rise more than 22%.

In fact, companies will have a relatively easy comparison to last spring as much of the U.S. economy shuts down for several months starting in March. That is one reason why stocks have reverted to lower levels.

But the rally could be justified, especially if vaccines and incentives come back more quickly to normal.

Lindsey Bell, chief investment strategist with Ally Invest, said in a report that “concerns about valuations could be overshadowed.”

“There is also a good chance that Wall Street is underestimating employment growth in 2021. Employment forecasts this year are still climbing,” she said.

Many companies tightened their belts through the pandemic, cutting costs to maintain profit margins. This means that incremental sales growth will have a greater impact on future earnings.

“The very strong margin performance during the pandemic is looking good for employment growth over the next year or two as income growth begins,” said David Lefkowitz and Matthew Tormey, equality strategies at UBS Global Wealth Management, in a report.

With that in mind, investors will be keeping an eye on the forecasts from major companies when they report results next week. (U.S. markets are closed Monday according to Martin Luther King Jr. Day.)

Several other big banks, in particular Bank of America (BAC), Sachs Goldman (GS) and Morgan Stanley (MS), expect to report. Also on tap? Earnings from Netflix (NFLX), United Health (UNH), Procter & Gamble (PG) and United Airlines (UAL).

Two tech giants of the Dow who have recently made a major staff move are also to report their latest earnings.

IBM (IBM), who recently hired former Trump economic adviser and former Goldman Sachs operating officer Gary Cohn as vice chairman, reports that the company plans to shut down a large portion of its former businesses to focus on the their cloud operations.
And struggling with a chip company Intel (INTC), who announced that Chief Bob Swan would retire after just two years at the helm, may speak more in his employment news about how he can get back on track .

There is an ‘emergency crisis’ in Alibaba

This is probably the biggest year to follow Alibaba (BABA) since its inception two decades ago, my CNN Business colleague, Jill Disis, reports.

The most famous tech company in China at home and abroad is facing a number of challenges that are in danger of fundamentally changing forever. Chinese authorities are scrutinizing the company for trust reasons, while also pushing the sprawling financial affiliate, Ant Group, to revive their business.

To make matters worse, the company’s head of figure – co-founder and former chairman and CEO Jack Ma – has been out of public view for months.

The other danger is Washington. While the Trump administration has backed a proposal to ban American investment in Alibaba and two other Chinese tech companies, U.S.-China tensions are unlikely to go away any time soon.

It could all make for a very rough 2021 for Alibaba.

“Alibaba, like all other major Chinese technologies is in [an] emergency crisis, ”said Alex Capri, a researcher at the Hinrich Foundation and a senior visitor at the National University of Singapore.

The next thing

Monday: U.S. markets closed

Tuesday: Bank of America, Goldman Sachs, State Street and Netflix earnings

Wednesday: BNY Mellon, Morgan Stanley, Procter & Gamble, UnitedHealth and Alcoa earnings; EIA report on crude investments

Thursday: Baker Hughes, Truist, Union Pacific, IBM and Intel earnings; ECB Decision; Original U.S. Unemployment Claims

Friday: Ally Financial and Schlumberger earnings; Conventional US home sales

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