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Apr 16, 2018

The Wall Street Journal | MoneyBeat: The Bar Has Gotten High for Easrnings Beats - April 16, 2018..

The Wall Street Journal
MoneyBeat

The Bar Has Gotten High for Earnings Beats

By Chelsey Dulaney
Morning MoneyBeat is the Journal’s pre-market primer. To receive the newsletter via email, click here.
Market Snap at 04/16/2018 08:22:29 AM ET
S&P 500 Futures 0.52%
2671.25
DJIA Futures 0.53%
24464
U.S. 10 Year -10/32
2.861%
WSJ Dollar Index -0.14%
83.68
Crude Oil -1.22%
$66.57
Gold -0.02%
$1347.60
Europe
Asia
FTSE 100 -0.51%
Nikkei 225 0.26%
DAX -0.11%
Hang Seng -1.6%
CAC 40 -0.13%
Shanghai -1.53%

Overnight Developments


  • U.S. stocks were poised to open higher Monday, while oil and bond prices fell, amid expectation that U.S.-led strikes on Syria late last week wouldn’t escalate into a broader conflict.
  • Investors breathed a sigh of relief after missile strikes late Friday by the U.S., U.K. and France on Syria didn’t lead to a major escalation in the seven-year-old conflict.
  • The Breakfast Briefing

    One problem with the ever-rising optimism surrounding U.S. corporate earnings: it’s becoming harder for companies to deliver results that boost their stock prices.
    Earnings season kicked off in earnest Friday when banks including JPMorgan Chase & Co., Citigroup Inc. and PNC Financial Services Group Inc. reported their results for the first quarter.
    Each of those companies reported double-digit profit growth for the period, but ultimately failed to impress investors. JPMorgan shares declined 3.6% Friday, while Citigroup fell 3% and PNC shed 4.5%.
    Analysts warn that other companies will likely face similarly-scrutinizing investors as they report earnings in the weeks ahead. That’s in part because expectations for profit growth among U.S. firms have gotten so lofty after a corporate tax-rate cut and a strong run for global growth.
    "Investors may have expectations that are simply impossible to meet," said Brad McMillan, chief investment officer at Commonwealth Financial Network, in an emailed market commentary. "If this kind of reaction is common this earnings season, that could weigh on the market."
    S&P 500 firms are forecast to report profits grew 17% in the first quarter of 2018 from a year earlier, according to data from FactSet Inc. That would be the strongest quarter of earnings growth since 2011.
    High hopes for earnings growth make it harder for companies to surprise investors with strong results, which can be a catalyst for a stock rally.  At the same time, uncertainties over geopolitics, trade and tech regulation continue to loom over the market.
    Morgan Stanley thinks the earnings recovery will top out this year as the recent pace of growth puts companies up against tougher year-over-year comparisons. That could turn to a drag on the nine-year-old stock bull market, Morgan Stanley warns.
    "It’s more likely that we simply see an exhaustion in the earnings cycle as tax cuts and economic stimulus create comparisons that essentially sow the seeds of its own demise," the analysts wrote.
    Will earnings continue to beat expectations? Let the author know your thoughts at chelsey.dulaney@wsj.com.

    Daily Factoid

    On this day in 1867, Wilbur Wright was born in Millville, Ind. At age 11, he began playing with a flying toy made of cork, bamboo and rubber bands. In 1903, he and his brother Orville make the world’s first sustained airplane flight.

    Key Events

    8:30 a.m.: Retail Sales for March [Prior: -0.1%; Consensus: 0.4%]
    American consumers are expected to have ramped up spending in March after a recent stretch of softness. Retail sales fell unexpectedly in February, the third straight month of declines.
    8:30 a.m.: Empire State Manufacturing Survey for April [Prior: 22.5; Consensus: 18.2]
    New York manufacturers are expected to report conditions softened this month after reporting robust improvement in March on strong orders and shipments.
    10 a.m.: Business Inventories for February [Prior: 0.6%; Consensus: 0.6%]
    U.S. business inventory growth is expected to have held steady in February. The prior month's growth was driven by strong retail and wholesale inventories.
    10:00 a.m.: NAHB Housing Market Index for April [Prior: 70; Consensus: 70]
    A gauge of U.S. home-builder confidence is expected to remain unchanged in April. The index has eased lately after closing out 2017 at its highest level in more than 18 years.
    1:15 p.m.: Raphael Bostic Speaks
    The Atlanta Fed president will speak at an event in Florence, Ala.

    Stocks to Watch

    General Motors—Up 0.3%: The auto maker will lay off up to 1,500 workers from a small-car factory in Ohio, the latest symptom of sluggish U.S. demand for cars amid the rising popularity of sport-utility vehicles.
    Bank of America—Up 0.9%: The bank said Monday that first-quarter profit rose, continuing the string of better-than-expected earnings from the nation’s biggest banks.
    Facebook—Up 0.5%: Facebook's proxy statement revealed security costs for Chief Executive Zuckerberg increased nearly 50% in 2017 to $7.3 million.
    Illumina—Unchanged: Illumina, a DNA sequencing company, and Bristol-Myers Squibb said they will collaborate on cancer drugs.

    Number of the Day

    $28 Million
    BlackRock Inc. Chief Executive Laurence Fink made $27.95 million for his 2017 performance, an increase of 10%, after a banner year for the world's largest money manager.

    Must Reads

    Some stock pickers are ready to drop the ‘‘F’’ in FANG. Fund managers have soured on Facebook since its revelation that millions of users’ data were compromised.
    The currencies of places as diverse as Russia, Hong Kong and Kazakhstan slid last week, an alarming sign to some investors who worry that the geopolitical volatility affecting U.S. stocks is spreading to other markets.
    Gold prices are locked in a tug of war, with investors piling in during periods of political stress only to pull out when interest rates look poised to rise.
    WPP CEO Martin Sorrell stepped down after an investigation into an allegation of personal misconduct.