First-quarter earnings season ramps up this week, with several closely watched technology companies set to report results. This week’s economic data reports will be relatively light, and members of the Federal Open Market Committee will enter their quiet period before their next meeting and monetary policy decision at the end of the month.
So far, corporate earnings have exceeded Wall Street’s already elevated expectations. Last week’s reports were dominated by the big banks, with JPMorgan Chase (JPM), Goldman Sachs (GS) and Morgan Stanley (MS) each reporting record results as strong stock and bond trading demand and rising interest rates boosted results.
Heading into last week, FactSet estimated that S&P 500 companies would report aggregate earnings per share growth of 28% for the first quarter, for the biggest jump in more than a decade. Of the handful of S&P 500 companies that reported results last week, none issued negative earnings per share guidance for the second quarter, while five offered positive guidance, according to FactSet’s John Butters.
This week, some of the major technology companies will post results.
For 2021 to date, tech stocks cooled their gains after last year’s rally, in a reversal from these stocks’ leadership in 2020. Traders rotated away from the high-growth names that already saw strong run-ups last year, turning instead to cyclical and value stocks that might start to see some upside as the economy recovers. Through Friday’s close, the energy, financials, materials and real estate sectors were the top performers in the S&P 500.
Netflix (NFLX) and Snap (SNAP) will be among the major names reporting results this week. The former especially has become synonymous with the “stay-at-home” trade, or the cohort of stocks that have benefited from consumers spending more time indoors during the pandemic, and which might be at risk for some slowing momentum once more areas of the economy reopen.
“Our data points indicate solid, if not spectacular, demand for the service, though we see increased near-term risk from pandemic reopenings and recent price increases,” Raymond James analyst Aaron Kessler wrote in a note Friday.
“While we continue to view Netflix as a long-term winner in the video-on-demand space, we remain hesitant around near-term factors including 1) risk to the pace of subscriber additions post-pandemic; 2) the pandemic’s effects on content releases into 2021; and 3) the impact of price releases on subscriber retention, especially given scaling of competing direct-to-consumer services, most of which are priced at a discount to Netflix,” Kessler added.
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