Here Are the Winners and Losers of Earnings Season So Far

Early this month, corporate earnings were looking like they were about to lose steam. But one week into the third-quarter earnings season, and the companies reporting their financials are looking more like the little engines that could.

Last week, FactSet looked at Wall Street analyst earnings estimates of S&P 500 companies and came up with a forecast of a 4.6% decline from a year earlier. Were that to pan out, it would mark the third straight quarter of year-over-year declines, a streak that hasn’t happened in more than three years.

Instead, many companies posted stronger-than-expected bottom line numbers this week, including Netflix, Johnson & Johnson, and banking giants such as JPMorgan Chase, Bank of America and Morgan Stanley.

Finance and tech were two industries expected to see weaker earnings. But, while it’s still early, that hasn’t happened so far.

So is the business climate really that much better than what analysts had forecasted? Sort of. Often, it’s the companies themselves lowering their earnings guidance, whether to hedge against the risk of bad news emerging late in the quarter, or to set a low bar for them to hop nimbly over in order to impress unwitting investors.

According to John Butters, a senior earnings analyst at FactSet, of the 113 companies in the S&P 500 that have issued earnings guidance for the third quarter, 73% of them issued negative guidance. In a typical quarter, 70% of estimate changes are lower. So the corporate outlook on earnings this time is darker, but by not by much.

Earnings Winners and Losers

Still, given the low expectations Wall Street held going into the first week of this earnings season, the overall performance was, while mixed overall, stronger than many were bracing for.

Financial institutions are usually among the first in line to report earnings. This week, some of them impressed their own investors with their ability to generate earnings during a quarter when interest rates were falling. They largely did it by focusing on consumers and wealth management.

JPMorgan’s $29.4 billion in revenue and $2.68 earnings per share both beat estimates, thanks to its consumer-banking arm which saw growth across its credit card, mortgage and auto lending businesses. Morgan Stanley and Bank of America also beat on their top and bottom lines, both bolstered by revenue from their advisory and wealth-management businesses.

JPMorgan’s stock is up 3.3% since reporting earnings, while Morgan Stanley’s has risen 2.1% and Bank of America’s soared 3.8%. In the case of BofA, it helps that Warren Buffett wants to buy more of the stock.

Other banks posted earnings that weren’t so well received. Citigroup also beat on its earnings and revenue, but its stock has fallen 2.3% as investors focused on what they saw as weakness in its trading and investment banking business. Goldman Sachs, which disappointed in its revenue and earnings, has seen its stock fall 0.3% since its earnings. It too reported weakness in investment banking, as well as its own investments, such as Uber and WeWork.

Investors were more forgiving toward Netflix, which saw revenue slightly below estimates, but posted net income that was 42 cents above Wall Street’s $1.05 a share estimate. Net new subscribers grew by 6.8 million last quarter, below the 7 million estimate, but not as bad as the disappointment last quarter. So speculative Netflix investors took it as a positive sign, pushing the stock up 2.5%.

Meanwhile, Johnson & Johnson managed to modestly beat Wall Street forecasts for its revenue and net income, despite facing a number of asbestos and opioid-related lawsuits. Its stock is up 4.2% since posting earnings early Tuesday.

Microsoft, Google, Amazon Ahead

Next week will bring a larger crowd of big-name earnings, including tech giants Microsoft, Amazon, and Google’s parent Alphabet. Intel, Procter & Gamble, Comcast, and AT&T are also slated to report their financials, the latter of which could supply some drama as it’s locked in a battle with activist investor Elliott Management.

These companies could give clarity on market concerns that weren’t directly addressed much last week: Rising labor costs for low-wage jobs; the U.S. China trade war’s effect on prices; and the strong U.S. dollar, which can affect the value of revenue from overseas operations.

Since September, Oracle, Adobe, and Costco have said that the strong dollar had at least some impact on their overall revenue, while FedEx and Nike were among those said that trade tensions were negative factors.

Next week will offer more evidence to show whether the first wave of corporate earnings was an aberration—thanks to Netflix’s traditional unpredictability and an unexpectedly strong performance among retail bank operations. Or whether analysts were right to call for a decline in overall earnings this quarter.