Could Upcoming Earnings Season Be a Market Turning Point?

NYSE: JPM | JPMorgan 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.

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: Option Sensei

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

Most Popular Stories on

How Low Could Stocks Go?

The S&P 500 (SPY) is starting to test key support levels for the first time since November 2023 given continuing signs that Fed rate cuts are getting pushed further and further into the future. This begs the question of “how low could stocks go?” 44 year investment veteran Steve Reitmeister does his level best to answer that question including a trading plan and top picks to stay one step ahead of the market. Read on below for the full story...

3 Biotech Stocks to Buy to Power Through April

The biotech sector is primed for growth, fueled by a surge in FDA approvals, anticipated M&A deals, and the integration of AI in drug discovery. So, fundamentally sound biotech stocks Theratechnologies (THTX), Harmony Biosciences (HRMY), and Shionogi & Co. (SGIOY) might be solid buys in this month. Keep reading...

Check out These 3 Internet Stocks for Potential Gains

Amplified internet usage, technological advancements, and a rising digital transformation worldwide have driven the internet industry rapidly. To that end, quality internet stocks (WIX), Tripadvisor (TRIP), and Yelp (YELP) could be solid buys now. Read on…

Top 3 Financial Services Stocks With Unstoppable Momentum

The financial services sector is set for solid growth owing to global economic trends, technological advancements making digital services more accessible, and changing consumer preferences.Therefore, investors could consider buying fundamentally strong financial services stocks Broadridge Financial Solutions (BR), Banco Macro (BMA), and Yiren Digital (YRD) as they look well-positioned to continue their momentum. Read more...

Updated 2024 Stock Market Outlook

The bull market continues to rage on with the S&P 500 (SPY) making new highs. That is the past...the question is what does the future hold? That is why 44 year investment veteran Steve Reitmeister provides this updated 2024 Stock Market Outlook to help you carve a path to outperformance the rest of the year. Read on below for the full story...

Read More Stories

More JPMorgan 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