Apple is set to report fiscal second-quarter earnings with a focus on its iPhone business in China amidst rising competition, capital return plans, and upcoming iPhone release. JPMorgan notes low investor expectations but sees potential for positive outcomes with the possibility of AI advancements. Expectations include a modest revenue miss in the quarter and a more significant miss in third-quarter revenue guidance. JPMorgan rates Apple at "Overweight" with a $210 price target. Key estimates for the quarter include iPhone revenue at $45.76 billion and service revenue at $23.28 billion.
Companies are about to ring in a brand new earnings season, but JPMorgan says investors are unlikely to see their stocks ride higher on rosy results for the first quarter. Various indicators point at strong earnings on deck from US companies, but earnings beats don't guarantee stock market gains, especially given the stretched market conditions, JPMorgan's strategists led by Mislav Matejka said in a note on Monday. Breaking it down, consensus forecasts on Wall Street for corporate earnings have taken a significant dip over the past few months, with S&P 500 earnings per share, excluding mega-cap tech, outright declining for the fifth quarter in a row, according to the note. Such lowered expectations, as well as a boost in stock momentum over the past three months, should signal robust earnings ahead, but the strategists argue it won't translate into a big leg up for stocks as much of the market's unbridled optimism has already been baked into prices. "Equities have already had a good run into the results, suggesting that investors are more optimistic than the downbeat earnings projections by sell-side analysts convey," Matejka said, adding that there's a notable gap this year between expectations for Federal Reserve policy and where indexes are trading.
Alphabet is gearing up to announce quarterly earnings, focusing on AI investments and digital ad market updates. Following Meta's downbeat forecast, Wall Street is closely watching Google's performance. Expectations include $66.07 billion in revenue, $1.53 in adjusted earnings per share, $9.37 billion in cloud revenue, and $60.18 billion in ad revenue. Despite a 15% gain in stock performance this year, Alphabet faces scrutiny amidst market pressure on tech giants with concerns over Fed interest rates.
Despite a recent rally, JPMorgan strategists predict a further sell-off in the US stock market due to macroeconomic risks such as Fed interest rate expectations, inflation concerns, and high equity valuations. The outlook is compared to the market conditions of last summer. The Nasdaq led gains with 1.1%, but the S&P 500 and Dow Jones also climbed. JPMorgan's Marko Kolanovic has the most pessimistic S&P year-end target of 4,200, implying a 17% drop from current levels.
In the first quarter of the year, JPMorgan reported a 6% rise in profits, while Wells Fargo and Citigroup saw declines although they surpassed Wall Street's expectations. The banks are cautious about the future due to high inflation and geopolitical tensions in Europe and the Middle East. JPMorgan CEO Jamie Dimon emphasized concerns about wars in Gaza and Ukraine, government spending, and persistent inflation. Citigroup executives also echoed similar sentiments, highlighting risks to the economy despite optimism for an economic soft landing.
US stock futures climbed with Dow Jones Industrial Average futures up by 0.3%, S&P 500 futures by 0.3%, and Nasdaq 100 futures by 0.4%. Chair Jerome Powell's reassurance on rate cuts boosted market confidence, shifting focus to the upcoming US jobs report. Expectations for further rate hikes due to economic acceleration have eased. Levi Strauss and BlackBerry saw stock increases due to positive corporate news. General Motors' stock has surged by 25% this year, outperforming Ford and S&P 500, attributed to improved EV execution and shareholder returns.
Investors are underrating the potential for an economic mishap, JPMorgan chief Jamie Dimon said, doubling down on similar warnings he's made in recent days. Speaking with reporters on Friday in a call, the prominent CEO characterized markets as " too happy, " saying that "the chance of bad outcomes is higher than people think." For now, the economy appears to be doing fine, Dimon acknowledged, citing support from excess savings, low unemployment, and the record-setting stock market. But difficulties are starting to emerge among lower-income earners, and the bank has noted fractures in subprime auto loans , he said. According to Quartz , he pushed back on speculation over figures such as interest rates and yields, citing these estimates to often be wrong.
Jamie Dimon, CEO of JPMorgan Chase, cautions that the market's optimism for a soft landing in the U.S. economy is overvalued, comparing the current situation to the stagflation of the 1970s. Dimon warns of potential stagflation risks due to high inflation and weak economic growth. He highlights concerns about excessive government spending driving growth and leading to long-term inflation and higher interest rates. Dimon's warnings extend into 2025 and 2026, emphasizing the reliance on fiscal spending for economic success.
Business economists, including the National Association for Business Economics (NABE), predict a 2.2% growth in the US economy for 2024, up from the previous forecast of 1.3%. Factors contributing to the upgrade include consumer spending, corporate investment, homebuilding, and government spending. Despite recent high interest rates aimed at controlling inflation, the economy has remained resilient with job growth and consumer spending. Expectations are high for interest rate cuts by the Federal Reserve starting in mid-June to further boost the economy.
JPMorgan Chase and Advanced Micro Devices saw decreases due to lower forecasts and Chinese chip phase-out reports, while Progressive and Exxon Mobil witnessed gains with positive financial results. Newmont Corp. rose with gold prices, Zoetis Inc. fell after pet health concerns, and Southwest Airlines faces reduced Boeing deliveries. State Street Corp. outperformed with strong earnings projections.
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