Another Bonanza Earnings Week As Apple Looms, With Fed, Payrolls Also On Weekly Agenda

An epic week begins on Wall Street today. Earnings from around 150 of the S&P 500 companies are only the start. There’s also a Fed meeting, payrolls data, and a new read on the U.S. manufacturing picture.

It starts Monday as one of the market’s most closely watched names reports earnings after the close. Beyond Meat Inc BYND looms this afternoon, along with results from a much more established player, Alphabet Inc GOOG.

The week kicks off with major indices on the march and record highs threatened in the S&P 500 partly because there’s optimism around the U.S./China trade picture. Asian and most European markets set the tone with gains earlier Monday. Another positive factor as the week starts is that earnings season continues to be good.

Later this week, investors get to hear from Apple Inc. AAPL, Advanced Micro Devices, Inc. AMD, Exxon Mobil Corporation XOM, and Facebook, Inc. FB, so plenty of big names remain in the wings. About 150 of the 500 S&P 500 names report this week, so it should give us a pretty good feel for what’s going on with corporate finances. 

The average earnings outcome is a little better than expected and there’s even talk that when it’s all wrapped up, results could finish flat to down 1%, compared with initial thoughts that they’d fall 4%. That’s not necessarily something to go out and wake the neighbors about, but any gains between now and the end of earnings season might give people something to cheer.

Earnings strength last week came from Intel Corporation INTC—whose shares spiked 8% on Friday—along with Microsoft Corproation MSFT, Visa Inc. V, Tesla Inc TSLA, and Verizon Communications, Inc. VZ. Some of the companies skipping the party included Caterpillar Inc. CAT, Texas Instruments Incorporated TXN, and Amazon.com, Inc. AMZN.

Early Monday, both AT&T Inc. T and Walgreens Boots Alliance Inc WBA saw gains after reporting earnings. WBA beat consensus views all around, but T came up a little short on revenue. The important thing with T was adding 101,000 new wireless customers.

The other thing that that appears to be helping drive the SPX toward new all-time highs is trade news. Wall Street appeared to like the headlines about the Office of the U.S. Trade Representative being close to finalizing some sections of the “Phase One” deal with China. A decent October consumer sentiment report from the University of Michigan on Friday didn’t hurt, either 

Microsoft Corporation MSFT shares jumped 3% early Monday  after the company received a huge Pentagon contract. That could help the Dow Jones Industrial Average ($DJI) in the early going. 

Technology, Materials and Energy paved the way Friday, with some of the so-called “defensive” sectors in the back of the pack. It’s going to be interesting to see if this building cyclical strength can last during a week dominated by distractions like the Fed and payrolls.

Beyond Meat to Report After Tough Quarter for Stock

This afternoon brings results from BYND, whose stock has been all over the map this year. Shares trade at around $100, up sharply from the initial public offering (IPO) price of $25 a share and making the alternative-meat startup one of the best-performing IPOs of 2019.

That said, shares are down 58% from a peak of about $234 set in July. From $25 to $100 sounds good, but from $234 to $100 doesn’t sound so nice. It’s all a matter of perspective.

As far as the business is concerned, BYND appears on pace to report its first profitable quarter as a public company. Third-party consensus pegs earnings per share at $0.04 in Q3 on revenue of $82.2 million. Recent highlights—likely to be discussed on the earnings call—include new product placements at restaurants, including McDonald’s Corporation MCD and Yum! Brands, Inc. YUM unit KFC. Also, BYND recently introduced its alternative-sausage at U.K. grocer Tesco, Barron’s noted.

Beyond that (pardon the expression), BYND has announced partnerships with Marriott International Inc MAR, Carl’s Jr., and Subway. So the company has definitely kept busy.

Still, the bloom could be off the rose, at least for now, when it comes to share price. Just over the last month, shares have fallen from nearly $150 to $100. If nothing else, this is a volatile stock, and likely to remain that way. It’s not one of those that you can just buy and forget about if you’re a long-term investor.

What makes BYND shares hard to count out is the interest millennials seem to have in the stock. It’s one of a bunch of names, including Uber Technologies Inc UBER and Nvidia Corporation NVDA, that this generation appears to love. Like most new things, it can be easy to get caught up in the excitement, and BYND is no exception. Sometimes investors confuse a company brand with its business. In other words, you may love the product, but that doesn’t necessarily mean you have to love the stock, too.

Big Week Ahead For Data and Interest Rates

Last week was almost all about earnings, but this week brings the ISM manufacturing data (more below) and payrolls, both Friday morning. We’ll talk more about jobs as the week advances, but at this point anything like the September report, which showed 136,000 jobs created and a slight slowdown in wage growth, would probably be seen as pretty benign.

Even a slightly lighter jobs number might not cause too much worry, because with the unemployment rate so low, it could signal that companies have already hired most of the people they need. The next question is where do wages go? It’s a complex picture and we’ll discuss it more in the coming days.

Before the jobs report comes the Fed decision Wednesday afternoon. It’s already pretty much baked in that there’ll be another 25-basis point rate cut, the third in a row. Futures at the CME Group start the week showing chances of that at 94.1%. What’s going to maybe matter more is what kind of message Fed Chairman Jerome Powell and the rest of the Federal Open Market Committee (FOMC) send.

Judging from the way Powell and company have talked lately, some analysts think it’s likely the message could be that FOMC members are keeping their options open and watching the data. However, if anyone injects a hawkish tone, it might get a fisheye from the market. Powell has made it very clear that he doesn’t consider rates to be on a predetermined path.

CHART OF THE DAY: CHANGE OF TONE. The 10-year Treasury yield (TNX-candlestick) spent months under pressure and well under its 50-day moving average (blue line). Just recently, it’s started to show some strength, and now trades above the 50-day (which, to be fair, is much lower than it had been). Still, the recent move here might indicate improved economic optimism, so let’s see if it lasts through this very data-and-earnings-heavy week. Data Source: Cboe Global Markets. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

Manufacturing Watch: We’re just a few days out from a report that last month really slammed the market: The ISM Manufacturing Index. It’s due this Friday morning. If you recall, last month’s reading on U.S. manufacturing health was the worst in a decade, driving fears that weakness in manufacturing might ultimately lead to a hesitant consumer. Last Thursday brought another sign of potential trouble as durable goods orders for September fell 1.1%. That was a bit worse than analysts had expected, with transportation the weakest category. One key takeaway from the report is that it indicated business spending remained weak, with a 0.5% decline in nondefense capital goods orders excluding aircraft, Briefing.com said. That followed a 0.6% decline in August.

We’ll learn more about business and consumer health Friday when the ISM data hits and the October payrolls report crosses the wire. With signs of manufacturing and orders flagging, the jobs report arguably becomes even more important. If wage growth starts to sputter, it could indicate the business issues are starting to have an impact on workers. On the plus side, weekly jobless claims stayed near recent low levels last week.

Yield Signs: Despite some weak housing and durable goods data last week, the U.S. Treasury market put in a decent showing. The benchmark 10-year yield ended Friday right at 1.8% (see figure 1 above). That’s about 15 basis points above the 50-day moving average of 1.65%, and also well above short-term Treasury yields. This strength could be a sign of investors reacting to better than expected earnings, some analysts believe, or it could reflect hopes for a trade deal. One geopolitical worry that just won’t seem to go away is Brexit, but that keeps getting kicked down the road. The interesting thing will be seeing how the 10-year yield reacts to the Fed decision this week, followed by ISM and jobs data.

Alphabet Ad Revenue in Focus: When Alphabet Inc GOOG reports this afternoon, investors are likely to be looking closely at revenue—ad revenue in particular. Last time out, the company reported better than expected overall revenue and shares rallied. It was the opposite case the time before that, when failure to meet analysts’ ad revenue estimates sent shares down sharply. Aside from that, one thing that could possibly stand in the way of another solid quarter is the greenback. The company’s chief financial officer set expectations last quarter that GOOGL continues to face foreign exchange headwinds, and there’s no reason to think that’s changed, even though the dollar has retreated a bit over the last week or two. Stay tuned.

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