Quarterly Outlook
Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?
John J. Hardy
Global Head of Macro Strategy
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Earnings Watch: The Q1 earnings season gets settled this week
Peter Garnry
Chief Investment Strategist
Summary: This week seven out the 10 largest companies in the S&P 500 will report earnings representing 15% of the MSCI World Index. Besides these mega companies hundreds of the world's most important companies across banking, energy, health care, social media and online advertising will report earnings. It is basically make or break for global equities this week, and the show starts Monday with Tesla where expectations are so high that it is almost an unbearable task for the management to deliver despite recently strong Q1 delivery numbers. Except for the much hyped uptake of electric vehicles we will also get earnings from Apple, Microsoft, Alphabet (Google), Amazon and Facebook the gang of five that dominates US equity markets.
Our title of this week’s Earnings Watch sounds dramatic, but it is actually not far from the truth. This week seven out the 10 largest companies in the S&P 500 Index will report earnings representing around $8.5trn of market value alone corresponding to close to 15% of the MSCI World Index from these giants alone. On top of that hundreds of the biggest companies in the world will report with a total 250 large companies reporting earnings out of the 2,500 companies we track during the earnings season. In other words, it is the monster week of earnings.
The list below shows the most important earnings of the 250 companies expected to releases earnings that all are important for the overall equity market, their specific domestic equity index or industry.
Monday: Canon, Tesla, Philips, NXP Semiconductors
Tuesday: DSV Panalpina, FANUC, HSBC, BP, Atlas Copco, Novartis, ABB, UBS, Microsoft, Alphabet (Google), Visa, Eli Lilly, Texas Instruments, UPS, Amgen, Starbucks, General Electric, 3M, AMD, Mondelez, Pinterest, Archer-Daniels-Midland
Wednesday: Shopify, Kone, Sanofi, Dassault Systems, Delivery Hero, Deutsche Bank, China Construction Bank, China Life Insurance, BYD, Sony, Keyence, GlaxoSmithKline, Lloyds Banking Group, Banco Santander, Apple, Facebook, Qualcomm, Boeing, Spotify, Ford Motor, eBay
Thursday: Orsted, Neste, Nokia, Total, Airbus, BASF, Agricultural Bank of China, Bank of China, PetroChina, Eni, Royal Dutch Shell, Equinor, Wilmar International, Nordea Bank, Amazon.com, Mastercard, Comcast, Merck & Co, McDonald’s, Caterpillar, NIO, Twitter
Friday: BNP Paribas, AstraZeneca, Barclays, BBVA, Siemens Gamesa Renewable Energy, DBS Group, ExxonMobil, Chevron, AbbVie, Colgate-Palmolive
Besides the seven out of the 10 biggest companies in the S&P 500, the week is also heavy on European and Chinese banking earnings, global energy companies which are important for inflation and our commodity basket, the largest pharmaceuticals, the rest of social media and online advertising companies after Snap earnings the past week, and then a couple of global giants within global consumer staples which will provide more insights on inflation in consumer goods.
The conclusion on earnings before this week’s earnings is that companies are still rebounding in terms of earnings with MSCI World earnings per share (EPS) up 3.8% q/q compared to 3.7% q/q and 1.4% q/q for the S&P 500 and Nasdaq 100 respectively hinting at the value vs growth outperformance. But this week could easily change that and catapult Nasdaq 100 into the earnings lead. Although the bar is getting increasingly high for US technology companies that have seen EPS grow almost 18% since Q4 2019. The MSCI World Index has surprisingly been doing much better than the S&P 500 suggesting that outside the mega caps the US corporate sector has been hit harder than European and the rest of the developed world.
The quick earnings review of the big fives
The five largest companies in terms of market value in the S&P 500 (Apple, Microsoft, Amazon, Facebook, Alphabet, and Tesla) are obviously the most important earnings for sentiment this week, so we will provide our quick earnings preview.
Tesla: expectations are high for Q1 results with revenue at $10.4bn up 74% y/y, but down from Q4 2020, driven by strong demand for electric vehicles. Tesla’s outlook is key, and investors will be looking at any signs of weakness from increased competition and pricing pressure in China. As Ford Motor and General Motors are selling more EVs the regulatory carbon credits that earned $1.6bn to Tesla in 2020 will slowly disappear creating earnings headwind. Any news on the Chinese market will also be scrutinized as Tesla lately landed in a PR disaster over lack of customer service and negative remarks from Chinese authorities ending in a public apology from Tesla.
Microsoft: analysts are expecting revenue for FY21 Q3 (ending 31 March) to show 17% growth y/y and EPS up 26% y/y driven by strong demand for cloud services and a rebound in IT spending. Work-from-home will also continue to underpin strong OS revenue and productivity applications. The most interesting surprise to look for is any new guidance or strategic ambitions communicated around gaming.
Alphabet (Google): earnings per share is expected at $18.26 up 72% y/y as Google’s advertising business has now fully recovered the initial hit during the first 3-4 months of the global pandemic. Google’s advertising business will likely begin to accelerate on the travel rebound but investors will nervously look for signs of whether Google’s overall advertising business is losing out to more in-application advertising on Amazon, Facebook, Pinterest, and Snap.
Apple: revenue expected at $76.9bn up 32% y/y and EPS of $0.99 up 54% y/y driven by strong iPhone demand and Services segment covering its online sales across its entire eco-system. However, the US Senate hearing last Wednesday had the company in the crosshair as companies such as Spotify testified about Apple’s alleged market abuse due to its rules governing the App Store. As we wrote on Friday, this has the potential to severely impact the Apple growth story if US Congress and the FTC begins to regulate Apple’s digital eco-system.
Amazon: revenue is expected to hit $104.5bn up 39% y/y and EPS of $12.64 up 152% y/y as the world’s largest e-commerce and cloud infrastructure business is still enjoying the tailwind from the pandemic lockdowns around the world. However, despite these tailwinds Amazon is experiencing rising logistics costs including last-mile delivery and increasing pressure to improve labour conditions at its fulfilment centers which could cause a negative surprise on operating margins in its e-commerce business. The cloud infrastructure industry is also heating up and the question is when the business will stop seeing operating margins expanding – could it be in Q1 2021?
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