Could Upcoming Earnings Season Be a Market Turning Point?

NYSE: JPM | JP Morgan Chase & Co.  News, Ratings, and Charts

JPM – Earnings season begins in earnest when large banks and key companies report their 3rd-quarter results next week. Could it be a market turning point? Continue reading for more details.

Get Free Updates

Join thousands of investors who get the latest news, insights and top rated picks from!

Earnings season begins in earnest when large banks such as JPM Morgan (JPM) and key companies such as Netflix (NFLX)  and IBM (IBM) reporting third-quarter results next week.

With stocks stalling just below all-time highs and essentially where they were 18 months ago, the next few weeks could make or break whether the market can finally establish a new and sustainable bull leg higher, or rollover into a potential bear market.

Right now, with data suggesting a global slowdown is taking place, and tariffs beginning to take a bite out of profits, the outlook is fairly pessimistic.

Consensus estimates from analysts are looking for a third consecutive quarterly decline in corporate profits. This would match the late 2015-early 2016 ‘”earnings recession” which saw stock sink by over 20% during the first part of 2016.


But while the trend is not necessarily promising, we need to remember Wall Street typically responds to whether a company meets, beats, or misses on expectations.  So, the fact that expectations have been coming down. In fact, this quarter has seen the largest number of negative preannouncements since that 2015 period — stocks may actually be able to rally if things are not as bad as expected.

But, what may be of greater concern is the outlook or guidance that companies provide.  That had taken on a decidedly negative tone over the past few quarters — you can see the steep drop in the use of optimistic language during earnings calls—and it’s likely to get worse as the potential for a resolution with China over trade diminishes.

(Source: Factset)

There is also the issue of the quality of the earnings coming from U.S. companies as they diverge not only from the rest of the world, but also from certain standard measures of profitability.

As you can see, U.S, corporate earnings have far outpaced the rest of the global economy as measured by the MSCI All-Country Index.  One has to wonder, given how reliant many U.S. companies on overseas demand — 65% of S&P 500 revenues come from abroad —  how U.S. profits can continue to diverge.

Another concerning divergence is if we view profits through the National Income and Profit Accounts (NIPA) which have stagnated during the post-crisis decade. By contrast, the S&P 500’s profits under GAAP accounting rules, leaving plenty of room for creative accounting, have moved higher.  And stock share prices have risen far faster than both.

There is normally some disparity between the two measures as companies will often use some financial engineers to smooth results during more difficult periods. The recent and accelerating divergence seems unsustainable and suggests U.S. corporate profits are not as strong they appear.

This quarter’s earnings season may force them, and investors, to acknowledge earnings projections and extension stock prices, need to come down.

JPM shares were trading at $112.52 per share on Tuesday afternoon, down $1.85 (-1.62%). Year-to-date, JPM has gained 18.86%, versus a 17.74% rise in the benchmark S&P 500 index during the same period.

About the Author: Steve Smith

Steve has more than 30 years of investment experience with an expertise in options trading. He’s written for, Minyanville and currently for Option Sensei. Learn more about Steve’s background, along with links to his most recent articles. More...

More Resources for the Stocks in this Article

TickerPOWR RatingIndustry RankRank in Industry
JPMGet RatingGet RatingGet Rating

Get Free Updates

Join thousands of investors who get the latest news, insights and top rated picks from!

Top Stories on

NASDAQ: NFLX | Netflix, Inc. News, Ratings, and Charts

2 Tech Names To Watch If Market Has a Correction

It is important to be aware of some of the top earnings growers where money might find a new home after a correction, and two names fit this bill accordingly
NYSE: SPY | SPDR S&P 500 News, Ratings, and Charts

3 Great High-Yield Stocks to Profit From Rising Political Uncertainty

Today's featured article covers 3 great high-yield stocks to profit from amid rising political uncertainty. Continue reading for more details.
NYSE: BABA | Alibaba Group Holding Ltd News, Ratings, and Charts

3 Picks Set to Soar Because of Coronavirus

ABBV, BABA and KURE are 3 uniquely positioned investments to profit from any continued rise in the coronavirus. Read on to learn more...
NASDAQ: AAPL | Apple Inc. News, Ratings, and Charts

Using Options to Protect Gains While Maintaining Upside Potential

Today's featured article covers how to use options to protect your gains while maintaining upside potential. Continue reading for all the details.
NYSE: IIPR | Innovative Industrial Properties, Inc.  News, Ratings, and Charts

Why Innovative Industrial Properties (IIPR) is Still One of Our Favorite Pot Stocks

Innovative Industrial Properties has made numerous acquisitions and actually raised twice the amount of capital that they did back in 2019

Read More Stories

More JP Morgan Chase & Co. (JPM) News View All

Event/Date Symbol News Detail Start Price End Price Change POWR Rating
Loading, please wait...
View All JPM News
Page generated in 1.3867 seconds.