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 Earnings next week are expected from big banks JPMorgan Chase
<JPM.N>, Citigroup <C.N> and Wells Fargo <WFC.N> as well as other
financial companies such as BlackRock <BLK.N> and PNC Financial
Services <PNC.N>. Earnings for the sector are expected to decline
5.4 percent.
If bank earnings come in better than expected, the S&P 500 <.SPX> is
likely to push through its record highs set in May 2015 after
several failed attempts, as Friday's jobs number helped push the
benchmark index to less than one point from its closing record high
of 2,130.82.
"Banks are definitely in the spotlight," said Tim Ghriskey, chief
investment officer of Solaris Group in Bedford Hills, New York.
"There is some trepidation in the market going into this earnings
season, the quarter economically was not particularly strong."
Financials have been the worst performing of the 10 major S&P sector
groups this year, down nearly 6 percent, as they were hit by reduced
expectations for a U.S. interest rate hike by the Federal Reserve
and uncertainty in the wake of the vote by Britain to leave the
European Union, or "Brexit."
Second-quarter earnings overall are expected to decline 4.7 percent,
according to Thomson Reuters data, the fourth straight quarter of
negative earnings, but up slightly from the 5 percent decline in the
first quarter.
Investors will be looking for confirmation this quarter that
earnings are starting to turn, with analysts anticipating a return
to growth in the back half of the year, starting with expectations
for a 1.8 percent increase in the third quarter.
"What we are hoping ... is that we are starting to see that we have
stepped out of the trough in terms of the economy from the first
quarter," said Jim Davis, regional investment manager at U.S. Bank
Private Client Group in Springfield, Illinois.
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"That second-half pickup could translate into some better earnings outlooks."
The current price-to-earnings ratio for the S&P 500 is an elevated 18.2 and an
increase in profits would make stocks cheaper.
Other notable earnings expected next week include Alcoa Inc <AA.N>, Yum! Brands
<YUM.N>, Delta Air Lines <DAL.N> and CSX Corp <CSX.O>.
The end of the week will give investors some insight on the health of the
consumer, manufacturing and inflation with monthly retail sales, the consumer
and producer price indexes, the Empire State manufacturing survey and a
preliminary reading on consumer sentiment.
Yet even with stocks scraping up against a record high, some investors remain
cautious in light of uncertainty about the Fed's plan for rates, upcoming U.S.
elections and potential ripple effects as the UK begins to move forward with its
exit from the European Union.
"It just strikes me there are just too many things that can go wrong over the
next couple of months," said Phil Orlando, chief equity market strategist, at
Federated Investors, in New York.
(Reporting by Chuck Mikolajczak; Editing by Linda Stern and James Dalgleish)
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