Chart Advisor: Earnings Ahead

Articles From: Investopedia
Website: Investopedia

Tuesday, 12th October, 2021

1/ Indexes sag as earnings approach

2/ JPMorgan Chase to lead the earnings parade

3Delta’s load factor under scrutiny 

4/ The bottom line

1/ Indexes Sag as Earnings Approach

Major averages moved lower ahead of key economic data and the beginning of third-quarter earnings season. Outside of iShares Russell 2000 ETF (IWM) advancing 0.5%, all three of State Street’s S&P 500 Index ETF (SPY), Dow Jones Industrial Average ETF (DIA), and Invesco’s Nasdaq 100 ETF (QQQ) moved to the downside. QQQ led the way lower, falling 0.4%. 

Tuesday’s job openings and Labor turnover survey came in with lower numbers than expected, as a record 4.3 million workers quit their jobs in August. Employment vacancies fell to 10.44 million during the month, well short of the 10.96 million expectations. Many industries have experienced labor shortages, and it will likely be cited as a major factor to bottom lines in the upcoming earnings season.  

Investors may be in wait-and-see mode, as consumer price index numbers are released tomorrow, as well as the start of earnings reporting for the quarter. Major banks kickstart earnings season, with JPMorgan Chase (JPM) reporting tomorrow before the opening bell. 

While it is difficult to predict how stocks will move after earnings, the financial sector has outperformed recently. The chart below compares SPY with State Street’s Financial Sector ETF (XLF). XLF’s recent gains could be investors expressing optimism ahead of earnings. Positive results could help the market move higher.  

2/ JPMorgan Chase to Lead the Earnings Parade

The first major domino to fall in the upcoming earnings season is JPMorgan (JPM), which is set to report fiscal third-quarter financial results Wednesday before the market opens. Analysts expect the largest U.S. bank to report $2.98 in earnings per share (EPS) and $29.4 billion in revenues. JPM has exceeded expectations for both EPS and revenue in each of the last five quarters. Regardless, option traders appear to be positioned for JPM to move lower after earnings.  

Below is a comparison of the recent performance of JPM and State Street’s Financial Sector ETF (XLF). JPM shares have been on a relative uptrend recently, outpacing XLF. Over the last month, while the market has largely underperformed, XLF is up 1.5%. In this same time span, JPM has risen 3.7%, and is trading above its 20-day moving average.

If JPM delivers a positive earnings surprise, it could bolster investor confidence in the rest of the earnings season, and perhaps quell some fears over ongoing labor and supply chain issues.

3/ Delta’s Load Factor Under Scrutiny

As the pandemic-induced economic recovery continues, investors have been keen to pay attention to stocks in reopening industries, and travel has been at the forefront. Delta Air Lines (DAL) and the rest of the airline industry have begun to bounce back as demand increases for travel. Analysts estimate an adjusted EPS of $0.25 and $8.4 billion in revenue. Investors will be focused on DAL’s load factor, a key metric indicating the percentage of a carrier’s available seats that are filled with paying passengers. 

DAL has managed to slightly outperform its sector recently, as evident on the chart below, which compares DAL with U.S. Global’s Jets ETF (JETS). DAL comprises more than 10% of the ETF. Airlines have rallied in the last year. However, the pace of the industry’s recovery has been slowed by delta variant fears. DAL and JETS have risen 33% and 34%, respectively, in the last year, and earnings can give a glimpse into how airlines have navigated the wider economic issues of rising costs due to inflation and staffing shortages.  

4/ The Bottom Line 

Stock indexes slid lower today ahead of JPMorgan’s earnings announcement. This announcement will unofficially mark the beginning of this quarter’s earnings season and investors may be showing a pessimistic sentiment about the upcoming headlines. 

Originally posted on 12th October, 2021

Disclosure: Investopedia

Investopedia.com: The comments, opinions and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy.  While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described on our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy. This information is intended for US residents only.

Disclosure: Interactive Brokers

Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from Investopedia and is being posted with its permission. The views expressed in this material are solely those of the author and/or Investopedia and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Disclosure: Options Trading

Options involve risk and are not suitable for all investors. Multiple leg strategies, including spreads, will incur multiple commission charges. For more information read the “Characteristics and Risks of Standardized Options” also known as the options disclosure document (ODD) or visit ibkr.com/occ