CQ4 Earnings Season Kick Off
January 13, 2020
The first week of earnings season is always dominated by large cap banks. We expect the numbers and guidance will be fine as most management teams sounded upbeat when they spoke at the Goldman conference in mid-December. But investors looking for vastly improved Net Interest Margins might be mildly disappointed (despite the quarterly yield back up and curve steepening) due to corporate lending competition from PE firms. Btw, Financials are technically in the value style basket, but no longer cheap relative to historic multiples. Also, we’re only looking for modest upside in bond yields from here. The Fed has been messaging a high bar for the next tightening cycle and absent consistently higher inflation data, bond participants will likely take more direction from Fed policy. Earnings season picks up meaningfully next week and runs into the mid-February. Consensus is looking for a -0.6% year-over-year decline in Q4 S&P 500 earnings. We expect guidance and qualitative management comments will mean more than earnings, but will track the progress of both beginning next week. Note S&P 500 earnings are expected to increase +9% in 2020, up from +1.5% last year.