Weekly Market Preview: Impact of U.S.- China Trade Truce; Will It Affect Q3 Earnings? (JPM, WFC, BAC, NFLX) - Nasdaq

It’s not exactly the moment the market was waiting for, but it’s close enough. And with both sides agreeing to what amounts to a “truce,” there is now legitimate reasons to be optimistic that the moment the market is waiting for is more realistic - at least more so than what has transpired over the past fifteen months.

Stocks closed higher on Friday on reports that the U.S. and China — the world’s two-largest economic powers — have reached an agreement not only to ease trade tensions, but also eliminate some planned tariffs. President Trump said the two countries had reached a “substantial, phase-one” deal of which which China has promised to buy $40 to $50 billion more U.S. agricultural products in exchange for eliminating a planned increase in tariffs which were to go into effect this coming Tuesday.

Although no decision has yet been made on new 15% tariff set to go into effect on Dec. 15, Friday's news sent the market higher by more than 500 points. This new agreement, according to The Wall Street Journal, also include “certain intellectual property measures” along with and other promises related to China’s currency management, will take three to five weeks to finalize. The Journal noted that terms of a possible tentative deal includes an agreement to prevent China from devaluing its currency.

Although equities closed off session highs (at one point the Dow was up 517 points), this is nonetheless a major development for multinational companies, particularly ahead third quarter earnings which begins in earnest next week. The Dow Jones Industrial Average closed higher by 319.92 points to 26,816.59, while the S&P 500 index climbed 32.14 points, or 1.1%, to close at 2,970.27 and the Nasdaq Composite added 106.26 points, or 1.3%, to close at 8,057.04. For the week, all three benchmarks were in positive territory.

This coming week, investors will get a better sense of how CEOs feel about the impact the trade deal will have on business conditions and how they will guide for the rest of the year. Here are the names to keep an eye on.

JPMorgan Chase (JPM) - Reports before the open, Tuesday, Oct. 15

Wall Street expects JPMorgan to earn $2.45 per share on revenue of $28.49 billion. This compares to the year-ago quarter when earnings came to $2.34 per share on revenue of $27.82 billion.

What to watch: Commercial bank stocks have not performed as well as prior estimates suggested, given that the Fed has adopted a new stance on monetary policy. Lower interest rates, while good for the consumer, makes it tough for banks to earn money on loans and deposits. JPM stock, meanwhile, has been one of the better performers, rising almost 20% year to date. The bank’s consistent execution, along with its plans to take on the discount brokers with its new commission-free arrangement has been applauded. On Tuesday analysts will focus on the bank’s guidance amid the low-interest rate environment to gauge the extent to which JPMorgan can to deliver growth this year and beyond.

Wells Fargo (WFC) - Reports before the open, Tuesday, Oct. 15

Wall Street expects Wells Fargo to earn $1.14 per share on revenue of $21.2 billion. This compares to the year-ago quarter when earnings came to $1.13 per share on revenue of $21.94 billion.

What to watch: Is it still worth holding Wells Fargo, one of Warren Buffett’s favorite high-yield dividend stocks, which pays out 4.12% yield? The bank is looking to change its culture and reputation and has recently tapped an outsider, Charles Scharf, formerly CEO of Bank of New York Mellon, as its new CEO. Scharf's first task will be to move the bank beyond its various scandals surrounding improper business practices and set a new tone towards growth and stability. In that regard, Wells Fargo still has a long way to go to earn Wall Street’s trust, but the troubled bank, which still has a strong underlying business, could be a top turnaround play for the next 12 to 18 months.

Bank of America (BAC) - Reports before the open, Wednesday, Oct. 16

Wall Street expects BAC to earn 50 cents per share on revenue of $22.82 billion. This compares to the year-ago quarter when earning were 66 cents per share on revenue of $22.93 billion.

What to watch: Bank of America has beaten earnings estimates in eleven straight quarters and the company’s stock has been rewarded handsomely, gaining more than 17% year to date. The bank has benefited from its focus on consumers and lending given the strength of the economy and consumer confidence. Bank of America's consumer segment made up 42% of the company's Q2 revenue. On Wednesday investors will want to see the extent to which these positive metrics can continue to rise, specifically with loan and deposit growth. Analysts will also look to gauge how other parts of the business such as investment banking can support top-line growth and profits.

Netflix (NFLX) - Reports after the close, Wednesday, Oct. 16

Wall Street expects Netflix to earn $1.04 per share on revenue of $5.25 billion. This compares to the year-ago quarter when earning were 89 cents per share on $4 billion in revenue.

What to watch: Netflix stock has been punished, falling some 30% since the company reported second quarter net new subscriber additions that missed Wall Street estimates. The movie streaming giant is facing stiffer competition not only from the existing players such as Amazon and Hulu, but also from new platforms from Disney (DIS) and Apple (AAPL), which has caused investors to re-evaluate Netflix’s long-term growth potential. While analysts remain positive that Netflix’s first-mover advantage won’t disrupt its growth story, the company on Wednesday must do its part to affirm that level of confidence by delivering not only strong subscriber additions for both domestic and international markets, but also upbeat guidance.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

2019-10-13 13:00:00Z
https://www.nasdaq.com/articles/weekly-market-preview:-impact-of-u.s.-china-trade-truce-will-it-affect-q3-earnings-jpm-wfc