What's going on?
On Friday, companies will start showing investors how they did in the third quarter of 2018. Look out for sales growth and hot autumnal trends like tax benefits and share buybacks (tweet this).
What does this mean?
Investors are expecting to see more of the same from 2018. Banks and technology stocks will likely be the darlings of profit growth. Meanwhile, consumer staples (like food and household necessities) and healthcare stocks will be the apples of revenue growth’s eye.
Tax reform, which has slashed companies’ tax bills, is expected to keep on keeping on according to The Wall Street Journal. Record levels of buybacks will also help boost profit (companies buying up their own shares reduces the number of them out there, so per-share profit is higher).
Why should I care?
For markets: A wobble but not a fall.
Last week was shaky for US stocks. Tech stocks suffered in particular, thanks to a Chinese spying scare. Investors are likely hoping that companies doing well in the third quarter (as is expected) will help stocks get back on the straight and narrow, and continue the record bull market (i.e. when stock prices trend upward) and all-time highs. When stock prices are high, investors’ expectations tend to be high, too – meaning that any earnings laggards will likely be punished harshly (by way of stock price drops).
The bigger picture: The trade war’s looming backstage.
Import taxes (a.k.a. tariffs) are an earnings stick in the mud. Companies that hawk products made of steel and aluminum (like car manufacturers and construction companies) are contending with higher price tags on their materials. Caterpillar bulldozed last quarter and performed well, but Alcoa (which produces aluminum) was on struggle street. Plus, the strong US dollar might weigh heavy on companies that earn money overseas – they’ll lose out when bringing the bacon home and converting it into dollars.