What's going on?
US companies will begin unveiling last quarter’s results this week – and even though they’re expecting another drop in profits, investors are pretty “idgaf” about the whole situation.
What does this mean?
The fourth quarter of 2019 was dogged by trade tensions, which may partly account for the anticipated 1.6% profit drop compared to the year before. A particularly strong fourth quarter in 2018 means that drop looks worse than it is – though profits also fell in the third quarter, making this twice in a row.
Investors can count on a few sectors being hit: industrials were in the thick of trade disputes, while profits at consumer discretionary companies (which sell things people want but don’t need) are expected to fall 14% from 2018. That’s largely driven by General Motors: it warned that a strike could make a $2 billion dent in its profit.
Why should I care?
The bigger picture: ¯\_(ツ)_/¯
With the US-China trade deal (finally) set to be signed on Wednesday, investors aren’t too bothered about last year. They’re expecting much cheerier news in the year ahead, and hoping 2019’s interest rate cuts will feed through to a more profitable 2020. According to Bloomberg, analysts are expecting US companies’ profits to grow over 9%, with energy, industrials, and materials firms at the forefront. But since much of that profit growth may already be baked into those companies’ stock prices, investors will be inspecting forecasts over the next few weeks to make sure their optimism isn’t misplaced.
For markets: Banks step up to the plate.
Earnings season will start with a bang – sorry, with the banks: JPMorgan Chase, Citigroup, and Wells Fargo all report on Tuesday. Investors watch banks’ earnings closely as they tend to reflect the overall health of the economy (tweet this). Lower interest rates have reduced the amount banks make from each loan, but they’ve also fueled demand for loans: analysts expect profits to grow 6% compared to the year before.