4 Things to Watch This Earnings Season

Shah Gilani|April 8, 2024

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First quarter earnings season kicks off this Friday…

Will the S&P 500 be able to match its monster 8% growth in earnings from the fourth quarter?

The consensus is looking for 3%… but there’s a reason it’s that low.

While everyone watches the numbers…

I’ll be looking at four key things. They will tell us far more about the economy’s direction than the numbers themselves.

See what they are – and get a special preview of Wednesday’s Buy This, Not That episode – in today’s video.

Click on the image below to watch it.

Transcript

Good morning, everybody. Shah Gilani here with your Monday Takeaways.

First up… was that a dip last week?

Was that the beginning of something? It sure looked like it could have been the beginning of something.

[Phone rings] There it is. That’s the something calling.

No. At the end of the week, it was no. Maybe not. Maybe if that was a dip and you had a chance to buy some stuff a little bit cheaper, you missed it. But at the end of the week, it was kind of a pretty strong finish to what was a kind of sloppy week, which could have been the beginning of something.

Had we closed Friday on the weak side of things, this week could have been even more interesting than it’s going to be. So the takeaway from last week and how we closed was… not so bad.

Still, buy the dips.

Now this week, well, we got a bunch of stuff coming up this week.

So, what do we have?

We’ve got CPI. We’ve got PPI. So, first up on Wednesday – I think that we’ve got a bunch of Fed speakers throughout the week, so they’re always going to be noise – but to me, the important numbers and the takeaway from what you want to watch economic numbers wise, we’ve got CPI on Tuesday at 8:30. We’ve got PPI on Thursday.

So we’re going to be keeping an eye on those. You’re definitely going to want to keep an eye on those numbers, because… so far, so good. The trend seems to be in the right direction, though we have sticking points with both CPI and PPI.

Will we see a little bit of a backup? Will that diminish the expectations for rate cuts? Markets are going to react.

A lot of economic numbers, a lot of Fed speak this week. But it’s how the markets are going to react that matters.

So the takeaway from the economic numbers, each one of them that drops from all this Fed speaker noise, will be, what’s the market reaction? Based on last week, kind of looking a little bit on the thinly veiled, kind of getting tired side to maybe not on Friday to, like, here we are. Now we’ve got more to contemplate.

So this week, takeaways from those numbers will be not the numbers themselves. Obviously, they’re important, but what’s far more important always is the market’s reaction. So that’s what you should be keying in on this week. This is certainly what I’m going to be keying in on this week.

And then, of course, we’ve got earnings starting on Friday. There’s a few before Friday, but, really, the start to the season for Q1 earnings is Friday. Now we’re going to get some of the big banks. We’re going to get the usual buildup into what’s going on.

So earnings, earnings, earnings. The takeaway is starting Friday, people, you’re going to start to focus on earnings, less on rate cut talk, less on Fed speak, and more on earnings, earnings, earnings, because it’s going to drive the market for the next few weeks at least, maybe, I would say, three, four weeks.

Keep a pretty solid focus on earnings… earnings… earnings.

Now, the thing about earnings I’ll to leave you with is, Q4, wow.

EPS growth across the board, I’m talking about the S&P 500, 8%.

Wow. That was double what analysts’ consensus estimates were for earnings growth in Q4.

Now consensus is for 3% growth in Q1. So, yes, do company analysts, do bank analysts, do the analysts lower their estimates? Yes.

Partly because management’s guiding them lower, so they can beat. It’s an age-old game! It’s nothing – nothing is going to change there. So, you know, you see a 3% consensus number for EPS growth, and you kind of scratch your head and go, well, how low is that really on the bar, and how easy will it be for companies to beat those expectations that are set for them?

So, again, we had 8% EPS growth in Q4. Consensus estimates are for 3% in Q1. So watch the numbers.

What’s going to be important is going be, I think, No. 1, consumers.

What are we going to learn from earnings this season on Q1? How are consumers sitting, and where are they likely to go? Are they going continue to spend? Are they going to start to show they’re tired? They’re spent?

They’re maybe running out of firepower. So that’s going to be a big takeaway from all the earnings numbers, all of the analysts’ expectations, where, you know, what will they be met with in terms of quarterly earnings and, of course, management’s calls and what they say about the earnings.

Key in on consumers. Information about consumer spending is going to be key this earnings season.

No. 2 is going to be the big names. Are they going to show consistency, better than expected top line, bottom line?

Are they going to show winding margins? Really about the leadership names because if they continue to grow, people will say fine, and the market can continue to grow, or the benchmarks can continue to grow as long as the leadership names continue to do well, earnings wise. So takeaway there, watch the big stocks. We have to key in on those.

The rest of the maybe 490 S&P 500 companies are probably going to be about margins, really. Top line, bottom line, of course. But margins are going to be important. Did they shrink a little bit in Q1 coming off pretty good robust Q4?

So I think margins are going to be a really important takeaway from this earning season.

And last but not least, the AI narrative.

Are companies going to talk about AI enhancing their top line, bottom line? Is it going to fall, is AI application and application of AI throughout ecosystems and companies going to manifest itself into the bottom line, into earnings growth?

It remains to be seen. If we don’t hear much about AI’s boost to earnings, and AI this and AI that, then maybe a little bit of dust is settling on that AI narrative. So the AI narrative and how AI comes into conversations into calls in this quarter’s earnings season is going to be really important. So those are the big takeaways.

And there’s something else.

There’s another universe out there. It’s the crypto universe, people. Holy mackerel, where’s there’s smoke, there’s fire, and there’s stuff that’s on fire. There’s stuff going on in crypto that if you don’t know what’s going on, you need to get on board with what’s happening and about to happen.

Okay? So I’m going to give you a major heads up in this Wednesday’s BTNT, Buy This, Not That. It’s going to be about that. It’s going to be a focus on crypto – like you’ve never heard me, seen me, talk about, or I just don’t talk about – because there’s stuff going on that you need to know.

And there’s a reason why things are percolating and doing a lot more than that in crypto land, and you’re going to find out more about it in Wednesday’s BTNT. So you definitely want to tune into Wednesday’s Buy This, Not That.

I’ll catch you guys next Monday. Be careful out there.