JPMorgan (JPM) and Wells Fargo (WFC) kicked off the Q1 earnings season for the big banks, with market participants getting spooked by management’s comments about credit quality and increasing defaults as households and businesses deal with the ongoing economic downturn.
On the earnings front, JPMorgan’s Q1 earnings were -68.8% below the year-earlier level on -3% lower revenues,with the banking leader booking a large reserve in anticipation of coming defaults. The market is justifiably concerned that if the best run and best positioned banking institution is in this state, then the picture is a lot more dire for many of the less capable operators that will be reporting in the next few days.
Looking at 2020 Q1 as a whole, total S&P 500 earnings are now expected to be down -11.8% on +1.2% higher revenues, with the Finance sector now expected to suffer an -18.1% earnings decline
Estimates have been steadily coming down for 2020 Q2 and for the full year 2020. The index’s June quarter bottom up earnnings are now expected to be down -19.7%, which is down from +3% in early February. For full-year 2020, S&P 500 earnings are now expected to be down -10.5%, which is down from +7.9% at the start of January.
Apple’s shares have outperformed the S&P 500 over the past six months (+20.9% vs. -8%), with the Zacks analyst crediting steady momentum in the Services segment for this outperformance. This momentum is showing up in strong App Store sales and the robust adoption of Apple Music and Apple Pay.
The company recently launched new iPad and MacBook. Solid adoption of Apple Watch and AirPod are expected to drive its top line. However, it doesn’t expect to achieve its second-quarter revenue guidance due to supply chain disruption amid the coronavirus outbreak, which is expected to hurt iPhone sales.
This, in turn, will likely dent investor confidence in the near term. Moreover, the company’s intensifying legal woes due to antitrust investigations and App Store-related lawsuits raise a concern.
Shares of Amazon have gained +22.3% over the past year against the S&P 500’s fall of -5.4%, with the company emerging as a key provider of essential services in an otherwise tough backdrop in the retail space.
Solid adoption of Prime driven by customer benefits, strengthening grocery services and expanding content portfolio is a tailwind. Further, expanding distribution strength and workforce which are helping in addressing the overflowing online orders during the coronavirus pandemic are major positives. Additionally, strengthening AWS services and its growing adoption rate are aiding Amazon’s dominance in the cloud space.
Furthermore, improving Alexa skills and features are other positives. However, rising transportation cost related to its free one-day shipping service is an overhang. Further, delivery delays due to coronavirus led rising orders are concerns. Also, intensifying cloud competition poses risk.