Earnings Bonanza

Despite a March full of worries about the U.S. banking system, investor sentiment has turned more positive heading into earnings season. 

"The S&P 500 is coming in hot to Q1 earnings season," Adam Turnquist, LPL Financial's chief technical strategist, wrote today. "Over the last month, the index has amassed over a 5% return, marking one of the biggest rallies into a reporting period since 2000."

A week into earnings season, the numbers are justifying the excitement. Some 90% of the 30 S&P 500 firms that have reported first-quarter earnings so far have exceeded estimates. (Many of those are from banks.) That's above the typical 70% beat rate -- and last quarter's 58%. 

It's worth noting here that expectations weren't exactly high, as my colleagues Jacob Sonenshine and Nicholas Jasinski report today: 

Then again, the bar was low: Analysts expect S&P 500 earnings to be down almost 5% year over year in the first quarter, on a revenue gain of nearly 2%. That would follow an earnings decline of about 3% in the fourth quarter of 2022.

It would be the first back-to-back period of falling earnings—a so-called earnings recession—since the 2020 Covid-19 lockdowns. 

Meanwhile, the beats might not last, Jacob and Nick write:

The data so far might make things look better than they are. First, it is early in the reporting season, so the sample size is small. Strong results from the biggest U.S. banks have skewed the numbers. Net interest margins—the gap between what banks charge on loans and what they pay on deposits—took off as the Federal Reserve raised interest rates over the past year, while loan volumes didn’t get hit enough to spoil the top-line results.

Netflix kicks off technology results tomorrow afternoon. Barron's Eric Savitz writes that it could be a confusing evening, since the company just ended its practice of providing specific subscriber guidance: 

This will be the first time Netflix will report results without having provided a specific forecast for subscriber growth, other than to say the net total should be positive. In another first, the earnings call this time around will be without founder Reed Hastings, who recently shifted into the role of executive chairman. Ted Sarandos and Greg Peters are now co-CEOs.

Eric adds that "Netflix is struggling to show meaningful growth given a weak economy, increasingly aggressive competition, and an apparently saturated U.S. market for streaming."

A weak report from Netflix could quickly change the excitement about earnings season, with much of the tech world scheduled to follow with their own results over the next three weeks.