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Earnings season is the next big test for the market and value stocks in the week ahead


Traders are seen on the New York Stock Exchange’s floor in New York City (USA), December 2, 2021.

Brendan McDermid | Reuters

The market will be focusing on fourth-quarter earnings in the week ahead. These are expected to show stronger profit growth for tech stocks than economically sensitive stocks.

It could be that the earnings period will test the theory that value stocks and cyclicals outperform technology stock. This will allow investors to get an inside look at companies’ inflation management strategies. rose 7% on an annualized basis during the final month of 2021The consumer price index measures the shopper’s cost of living.

Earnings will grow 20% annually, according to Credit Suisse chief U.S equity strategist Jonathan Golub. Credit Suisse Chief U.S Equity Strategist Jonathan Golub said that the companies would likely beat it and come in at 25 to 30%.

“It’s totally skewed with about 20% of the market — the cyclical sectors energy, materials, industrials, discretionary — together expected to grow 95% to 100%,” he added. Everyone is expected to perform better than tech.

According to Golub’s estimates, the S&P technology sector is expected to grow earnings by just 11%.

He said that energy, material, and industrials are all expected to provide much higher earnings growth, not just now, but also in the future.

Materials sector earnings are forecast to rise by 62%, and industrials will grow by 52%. Since last year’s negative results, energy profits are expected to rise sharply. Expect 33.9% growth in earnings for consumer discretionary (minus internet retail). Although financial stocks are also considered to be cyclical, they should see profits increase by only 2%.

Companies that have inflation above these levels naturally win over those that don’t. These companies are the largest beneficiaries of inflation. Golub stated that this is an inflation story. Tech companies are not the right choice when you consider the markets’ excitement. With 10% of their growth, they’re still quite good. This is fine. However, others do much better.

Golub noted that revisions to earnings estimates have also favored cyclical industries. The cyclicals have seen growth estimates increase by 9.5%, while the tech sector has received earnings estimates that are lower by 1.6%.

Friday’s earnings report was reported by several major banks. The week ahead will be busy with many sectors and more reports. Financials, like Goldman Sachs, Travelers Bank of AmericaNetflix reports, and so does the consumer brand giant Procter & Gamble.You can also find results from transport companies like J.B. Hunt Transport Services, United Airlines Union Pacific.

However Citigroup, Wells Fargo JPMorganWhile they beat their estimates on Friday when they released the results, their stock performance was not as good. JPMorgan fell more than 6%Friday’s disappointing outlook included warnings about wage inflation headwinds.

Steve Sosnick (chief strategist, Interactive Brokers) stated that he believes there will be clarity in a number of industrial- and cyclical companies and their ability to weather supply chain and price pressures.

Bonds and stocks are tied

Sosnick indicated that technology would remain tied to any drastic moves made in the future. 10-year TreasuryThe remained at 1.77% on Friday, down from its most recent peak of 1.8%.

Early in the year, the 10-year yield, which increases when bonds are sold off, saw a significant rise as the Federal Reserve reiterated their hawkish stance. According to the central bank, it had discussed shrinking its balance sheet at its December meeting. It could lead to further tightening of policy from the Fed, which already projects three more interest rate rises in 2018.

The technology sector performed better than the industrials and material sectors, both of which fell about 1% each for the week. Tech lost 0.6% over the week and outperformed financials by 1.3%.

It Nasdaq was off about 1% for the week as of Friday afternoon, while the S&P 500 was down 0.8%.

In the coming week, Treasury markets could see a bit more calmer as markets close Monday in observance of Martin Luther King Jr. Day.

Michael Schumacher from Wells Fargo stated that Fed officials now have entered a period of calm ahead of their meeting on Jan. 25-26.

“The 10-year, and 30-year rates” [Treasury]Auctions have been abandoned. We believe that the major catalysts are now in the short term. Schumacher said that we believe it will quieten down next week. I think it’s the 10-year sits. The 10-year sits are at the very least an opportunity for stocks to recover.

A few economic reports are available on the calendar. They include the Fed’s Empire State manufacturing survey Tuesday, and the Philadelphia Fed manufacturing study Thursday. Also, Thursday will be reported on existing home sales.

Sosnick believes that volatility will continue, and tech will be under attack. According to Sosnick, “I believe what we are seeing is growth in any price going back towards growth at an affordable price.”

Week ahead calendar


Martin Luther King Jr. Day – Markets close


Earnings: Goldman Sachs, Charles Schwab,Truist Financial and Bank of New York Mellon J.B. Hunt Transport,Interactive Brokers

8:30 a.m. Empire State manufacturing

10:00 a.m. NAHB survey

4:00 p.m. TIC information


Earnings:Bank of America Procter & Gamble, UnitedHealth,US Bancorp Morgan Stanley, Alcoa, United Airlines, Discover Financial, FNB, Fastenal, Citizens Financial, Prologis, State Street, Comerica

8:15 a.m. Starts Housing

8:15 a.m. Survey of business leaders


Earnings: Netflix, Travelers, Union Pacific, American AirlinesBaker Hughes Fifth Third Intuitive Surgical, Northern Trust,CSX, Regions Financial PPG Industries

8:30 a.m. 8.30 a.m. Initial jobless claims

9:00 a.m. Philadelphia Fed Manufacturing

10:00 a.m. Existing home sales


Earnings: Schlumberger, Ally Financial, Huntington Bancshares