Earnings Bonanza Continues, With Internet, Energy Firms In The Spotlight

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Includes: AMZN, COP, CVX, F, FB, GOOG, KO, MCD, MRK, XOM
by: TD Ameritrade

Summary

Facebook came in way above estimates, with earnings of 97 cents per share on revenues of $6.44 billion.

Before Ford and ConocoPhillips missed so badly this morning, close to 70% of reporting companies had beat analyst expectations.

Renewed strength in the U.S. dollar is starting to be a factor in the stock market.

By Scott Connor, of the Trader Education group at TD Ameritrade, managing Swim Lessons trader educational programming

Social media outdid bricks and mortar, at least in the latest 24 hours of earnings season.

A big "like" went out for results from Facebook (NASDAQ:FB) after Wednesday's close, with the stock climbing sharply on the news. That contrasted with weaker than expected results this morning from Ford (NYSE:F) and energy giant ConocoPhillips (NYSE:COP). That mixed earnings picture could unsettle the market Thursday, even as investors continue to digest the takeaways from this week's Fed meeting.

Ford and ConocoPhillips are just two of 466 companies reporting today, making this one of the biggest days of the earnings season. After the close come Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOG), followed by BMY rival Merck (NYSE:MRK) before tomorrow's opening bell. And not to be overlooked: Exxon Mobile (NYSE:XOM) and Chevron (NYSE:CVX) also early Friday.

But the focus this morning may be on Facebook, Ford, and ConocoPhillips. On the plus side, Facebook came in way above estimates, with earnings of 97 cents per share on revenues of $6.44 billion. Analysts had expected 82 cents per share on revenues of $6.02 billion, according to a Thomson Reuters consensus estimate. Facebook's ad business took off during the quarter, and most of it was mobile ad revenue, which analysts saw as a positive sign.

ConocoPhillips, however, reported a loss of 86 cents per share, or $1.1 billion, Analysts expected a loss of 61 cents a share, according to Thomson Reuters. The company cited a difficult pricing environment. Those less than stellar results put more importance into tomorrow's reports from XOM and CVX and raise attention around the energy sector. Could things be worse than investors had thought?

And Ford reported earnings of 52 cents a share, below expectations for 60 cents. Flat North American sales ganged up with losses in Asia to take a bite out of the company's results. Also, Ford's executives, on their earnings call, brought up Brexit, Britain's decision to leave the European Union, saying it will cost Ford about $200 million this year and grow to $400 million to $500 million next year, Bloomberg reported. In the last few weeks, there's been less talk about Brexit, but Ford's earnings put it back in the spotlight.

For anyone feeling bewildered by all the earnings reports coming down the pike, it may be useful to take a look back at what earnings season has told us to date. Before Ford and ConocoPhillips missed so badly this morning, close to 70% of reporting companies had beat analyst expectations, a rate that's slightly higher than normal.

Maybe the mostly strong earnings hint that the Fed was onto something Wednesday when it once again opened the gates to the possibility of a rate hike yet this year, noting that "near-term risks to the outlook have diminished." The Fed kept rates unchanged, which didn't surprise investors, but there's more talk now that a rate hike could come before the end of the year. Remember, though, that the election in November looms, and sometimes political pressures can factor into the timing of a fall rate hike.

Keep an eye on Europe tomorrow. Its banks get the results of their stress tests back. European banks have struggled recently, and if they don't pass, it could put more pressure on the sector.

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Figure 1: Can Rally Continue? The S&P 500 (SPX), plotted here through Wednesday on the TD Ameritrade thinkorswim® platform, continues to trade near record highs, but a mixed earnings picture Thursday is in focus. Source: Standard & Poor's. For illustrative purposes only. Past performance does not guarantee future results.

Fed's George Remains Lone Dissenter on Rates: It's lonely for those urging a rate hike these days, something Kansas City Fed President Esther George can probably attest to. George was the only member of the Federal Open Market Committee (FOMC) to vote in favor of raising rates at this week's meeting, George, who voted in June to keep rates unchanged, had hinted publicly earlier this month that she'd changed her thinking, saying, "The economy is at or near full employment and yet short-term interest rates remain at historic lows. Keeping rates too low can also create risks." But George's hawkish view didn't resonate with other Fed members this week, evidently. Although the Fed's statement noted that near-term risks to the economic outlook have diminished, it also said inflation remains low and business fixed investment has been "soft." Could more Fed members come around to George's point of view at the next meeting in September? It's possible, but a lot of data and earnings lie between now and then. The probability of a September hike stood at 18% soon after the Fed's decision Wednesday, according to futures prices.

Strong Dollar Hits Multi-Nationals: It's official: Renewed strength in the U.S. dollar is starting to be a factor in the stock market. Just take a look at Coca Cola's (NYSE:KO) Q2 results, which sent the stock tumbling Wednesday. The company, in its earnings press release, cited "foreign exchange headwinds" as one of the factors contributing to a 5% decline in reported revenues. McDonald's (NYSE:MCD), which reported earlier this week, also lost a couple of pennies on its bottom line to the robust greenback. Keep an eye on other big multi-national companies reporting this week, including Ford and some of the major U.S. pharmaceutical firms, to see if this trend continues. Ford cited the strong dollar as a factor in its weak Asian performance in the Q2. The dollar rose this week to its highest levels vs. the euro in a month, and the yen retreated against the dollar on Wednesday after reports that the Japanese government would inject new stimulus into the economy. A stronger dollar makes it harder for U.S. companies to sell their products overseas. On the plus side, it can help make imports cheaper for U.S. consumers, and it's likely one of the reasons for oil's sharp recent plunge, another factor that could potentially help consumers.

"Opportunity Jobs" Lacking, Study Finds: If there's one thing politicians from both major U.S. parties often agree on, it's that the economy needs to create more jobs. But quality of jobs is a factor the politicians don't delve into as much, and right now, such jobs are lacking, according to a study by job search firm Indeed. Quality jobs, defined as those with high pay (an average salary of higher than $57,700) and salary growth of 25% or more after inflation over the last 10 years, make up less than 16% of the U.S. labor market. " With such a low percentage of jobs providing a household-supporting wage with growing purchasing power over time, it is hard to dispute that we are living in a highly polarized, 'best versus the rest' economy," the study notes.

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I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.