After surging to record highs last week, the stock market will be put to the test as U.S. companies start reporting earnings for the fourth quarter this week.
Earnings growth will need to justify the sky-high premium the market has reached given the explosive rally over the past year. Analysts are widely expecting to see the majority of companies meet earnings expectations.
Another key event that could influence the direction of markets: the U.S. and China signing Phase One of the trade deal. Investors are eagerly awaiting the details of the deal which could clarify its implications on some sectors.
In a week packed with earnings reports, there are three mega stocks in particular whose readings could impress:
1. JPMorgan Chase
Wall Street’s powerhouse commercial and investment bank, JPMorgan Chase & Co (NYSE:JPM) will release its Q4 earnings on Tuesday. Analysts on average expect $2.35 a share profit on sales of $27.87 billion.
Driven by strong loan growth and robust business in the lender’s flagship investment banking division, 2019 is proving to be a healthy year for JPMorgan. In Q3, the bank posted its biggest increase in revenue from fixed-income trading in almost three years and also surprised with a jump in fees from investment banking.
This earnings momentum has kept JPM shares well-supported this year. Early this month, JPM shares hit a record high of $141.10. They are up more than 35% in the past year, closing Friday at $136.07 after falling 1%.
Although a low interest-rate environment going forward may not help the lender, it could fuel increased loan expansion, assisting JPM in increasing its lending activity. That’s what JPM’s Chief Executive Officer Jamie Dimon pointed out last year when he told analysts that the near-term outlook for credit is relatively rosy.
2. Delta Air Lines
Delta Air Lines (NYSE:DAL) will report Q4 earnings on Tuesday before the market open. On average, analysts are expecting $1.34 a share profit on sales of $11.34 billion.
Delta led all U.S. carriers in generating higher net income, giving its CEO, Ed Bastian, tremendous ammunition with which to expand. In September, Delta agreed to pay $1.9 billion for a 20% stake in LATAM Airlines Group (NYSE:LTM), Latin America’s largest airline.
At an investor event in December, Delta announced it expects 2020 adjusted earnings of $6.75 to $7.75 a share, which compares with an average estimate of $7.06 from analysts, on continued high travel demand. Top-line revenue will grow 4-6%, generating $4 billion of free cash flow.
The carrier also maintained its outlook for 2-3% growth in non-fuel costs for each seat flown a mile, a measure of efficiency. But these positive tailwinds have so far failed to excite investors. Delta's stock has hardly budged in the past six months, the result of global anxiety over economic growth and trade uncertainty. Shares closed at $59.24 on Friday, rising 0.5% on the day.
3. Schlumberger
Schlumberger (NYSE:SLB)—the world’s largest oil services provider—will report its Q4 earnings on Friday before the market opens. Analysts on average expect $0.37 a share profit on sales of $8.17 billion.
The shares of Schlumberger, which operates in more than 120 countries, supplying the industry's most comprehensive range of products and services, are experiencing a dramatic recovery that began in early October as the company has seen a rebound in international business. The stock closed on Friday at $39.83, up about 30% during the past three months.
Schlumberger generates most of its income from business outside the U.S. and Canada. The oilfield services giant is forecasting single-digit growth for 2019, with explorers slated to boost spending as much as 8%. The earnings potential for Schlumberger internationally is about four times that of its competitors when considering its larger market share and operating margin.