The second-quarter earnings season kicked off last week, with big banks, including JPMorgan Chase reporting better-than-expected revenue and earnings. This week, earnings will likely be in even greater focus given reports from key companies that could have market-moving implications, including Tesla (TSLA) -) and Netflix (NFLX) -) on July 19.
Big Companies, Big Earnings
The biggest companies have accounted for the lion’s share of this year’s stock market gains. Whether or not they report better or worse than expected earnings for the second quarter will likely determine if the major stock indexes, including the S&P 500 and NASDAQ 100, can continue higher.
“Analysts are predicting that EPS for S&P 500 companies will drop 8.1% from a year ago as profit margins are squeezed. But the issue is whether this is already discounted by the market,” writes Real Money’s James DePorre.
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Earnings estimates for many of the biggest technology companies have trended higher. For example, analysts have bumped up the median earnings per share estimate for the magnificent seven stocks, Microsoft, Apple, Nvidia, Amazon, Tesla, Meta Platforms, and Alphabet, by 5.4% in the past 90 days.
That’s bullish, and indeed, it has supported healthy returns recently. However, companies may need to report meaningfully better results and guide future quarters higher than expected for shareholders to pocket additional gains. If not, we could see these stocks retreat.
“The big banks that reported on Friday surprised the market with better-than-anticipated reports, but it resulted in a sell-the-news response as the gap-up opens were aggressively sold, and names like Citibank (C) -) went from green to red,” wrote DePorre.
The risk of a post-earnings sell-off is heightened because stocks face historically stiffer headwinds in summer. According to the Stock Trader's Almanac, August and September have been the 11th and 12th worst months for average NASDAQ returns since 1971.
Results will also impact industry peers. For example, Netflix’s report could carry over to other streaming companies.
DON'T MISS: Netflix Stock Gets a Surprising Price Target
“We also should get insight into how the writers' and actors' strikes are impacting television and media content. Netflix's words on the topic should impact Paramount Global (PARA) -) and Walt Disney (DIS) -), two names headed in the opposite direction as Netflix. Weakness from Netflix could be a backbreaker in the short term for Disney and Paramount,” writes Real Money Pro’s Bob Byrne.
Paramount and Disney are expected to release their quarterly results on August 7 and August 9, respectively. Wall Street expects Netflix to report revenue of $8.28 billion and earnings per share of $2.85 for the second quarter.
Similarly, what Tesla says about auto demand on Wednesday could move the needle for competitors, particularly Ford (F) -), the second-largest U.S. electric vehicle maker. The industry has been weighed down by higher interest rates and strained consumer budgets due to inflation over the past year.
Tesla’s first Cybertruck recently rolled off assembly lines, putting Tesla directly in competition with Ford’s F-150 pickups, including the F-150 Lightning. Ford is scheduled to report its quarterly results on July 27.
On July 2, Tesla reported it delivered a record 466,140 electric vehicles in Q2, beating estimates of 445,000. Wall Street estimates Tesla's sales for the quarter totaled $24.49 billion, and earnings clocked in at $0.82 per share. If results eclipse those figures, it could kickstart shares.
