Earnings probably fell in the first three months of the year. But investors have largely looked past that. The Dow is up 13% so far in 2019 and is not far from its all-time high. The S&P 500 has surged 15% while the Nasdaq has skyrocketed nearly 20%.
The market is predicting that profit growth will return to near double-digit levels by the fourth quarter. So investors will need to pay close attention to what CEOs say about the remainder of 2019 in their earnings calls.
"Unless this quarter's earnings are much worse than consensus, the more important thing will be the guidance," said Cliff Corso, executive chairman of Insight North America.
Corso thinks that earnings for the full year could wind up increasing around 5% thanks to strength in the second half. That's not fantastic but it might be good enough to keep the market rally going -- albeit at a less explosive rate than previous years.
"This year's earnings are probably not a recipe for a blockbuster market return, but there is no viable alternative for investors."
Market valuations: Not too hot. Not too cold. Just right?
Concerns about an imminent recession should continue to fade, notes Jay Hatfield, portfolio manager and founder of investment firm InfraCap.
Hatfield thinks that stocks are still reasonably priced, if not necessarily cheap. The S&P 500 is currently trading at around 17 times earnings forecasts for this year. That's roughly in line with its historical average.
"There are no sectors overheated and imploding right now. The market is not a screaming buy but it's not overvalued either. There are still some bargains," Hatfield said, adding that he thinks banks and energy stocks look particularly attractive.
So investors should be looking at sectors that would benefit from the continued economic expansion in the United States, says Dec Mullarkey, managing director of investment strategy at Sun Life Investment Management. Now is not the time to get skittish and defensive.
"It's still a good idea to be bullish and exposed to growth. People will be rewarded for sticking with stocks right now," Mullarkey said.
2. Banking on the banks: JPMorgan Chase and Wells Fargo report earnings Friday. JPMorgan Chase CEO Jamie Dimon recently told investors in the company's annual report that the bank's profits got a big boost last year from corporate tax cuts.
Dimon may talk more about that, as well as his recent criticism of President Donald Trump's latest two choices for open spots on the Federal Reserve, in calls with reporters and analysts.
As for Wells Fargo, expect questions about the scandal-ridden company's search for a new CEO now that Tim Sloan has stepped down.
Investors are hoping for signs that earnings at both banks will improve later this year. Revenue is expected to be flat at JPMorgan Chase in the first quarter and down at Wells Fargo. There are concerns about how low interest rates will impact their businesses.
3. Delta flies high: The airline giant has already forecast earnings for the first quarter to be better than expected thanks to fuel costs rising at a less dramatic pace than it had originally anticipated.
Delta will report its official results on Wednesday. The stock is a favorite pick of investing legend Warren Buffett. And Delta has held up better than other US airlines since it does not have any Boeing 737 Max jets in its fleet.
4. ECB and Fed in focus: The European Central Bank will announce its latest decision on interest rates Wednesday morning.
No changes are likely but expect ECB president Mario Draghi to talk more about the bank's plans to delay rate hikes as well as its new program of inexpensive loans for banks. Draghi may also address recent weak economic data in Germany and Italy.
Later Wednesday, the Fed will release minutes from its March meeting. The Fed held rates steady, lowered its economic forecasts and signaled that no further rate hikes are coming this year. Investors will hunt for clues about whether some members think the Fed should cut rates -- which both President Trump and his Fed board pick Stephen Moore have called for as of late.
5. When you wish upon a streaming star (and Star Wars): Disney will host an investor day event Thursday. The media giant says the event will focus on its streaming media plans, including its upcoming Disney+ service.
Investors may also ask questions about the integration of the Fox assets that the House of Mouse just bought as well as succession plans for CEO Bob Iger, whose contract expires in 2021.
Disney could reveal more Star Wars news a day after the investor event. Episode IX director J.J. Abrams will speak at the Star Wars Celebration in Chicago on Friday, leading to rumors that a trailer and movie title could drop.
6. Coming this week:
Monday — US February factory orders
Tuesday — US February JOLTS job openings report; IMF world economic outlook
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