Chart Advisor: Earnings Ahead

Tuesday, 12th October, 2021

1/ Indexes sag as earnings approach

2/ JPMorgan Chase to lead the earnings parade

3/ Delta’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. 

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Originally posted on 12th October, 2021