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It’s the one they’ve all been waiting for. While results so far this year have only partially reflected the hit from coronavirus disruption, next week’s updates from corporate America should show us the full effect virus-induced lockdowns have had on US balance sheets.
Second-quarter and half-year earnings are set to come in thick and fast from some of the biggest names across the pond, so what should investors be looking for and where do the main stories look likely to come from?
First up en masse are the banks. The lowest interest rate environment in history has seen big banks, used to making money on the interest they add to their loans, become a value play in many investors’ eyes.
While it has been an ongoing battle against rates for over a decade, new challenges this season could be the potential for defaults on business loans as lockdown forces store closures, and how trading divisions have dealt with market volatility.
On the flipside, good news could come from those institutions working with struggling companies to reorganise their payments and provide a cash cushion at the moment.
Investors will need to keep in mind going into next week that the second-quarter balance sheet of this year will have taken a direct hit in many circumstances. Results and cash piles from the likes of Citigroup, Goldman Sachs and Morgan Stanley could give an indication of what is to come in the next few weeks among, what will be, many of their corporate partners.
The past few months have shown us how divergent fortunes can become between sectors, and over such a short space of time. While most corners of the market saw big share price pullbacks in March as the virus spread, one headline recovery has been technology.
The tech-heavy Nasdaq has grown by 24% in the past six months, hitting new highs, versus a sideways-moving S&P 500 and a 7.4% fall for the Dow Jones.
The charge has been led by the sector poster boys but the rise will have investors questioning the validity of current valuations. Apple, Microsoft, Amazon and Google-owner Alphabet now have market caps well over $1 trillion, with Amazon in particular seemingly using the turmoil to spur on its distribution and drive its share price even higher.
Market watchers will be keen to see just how much it has taken to achieve this growth and, crucially, how much can be maintained when the going gets easier. Yesterday’s news of the company’s hiring spree in Tulsa echoes the call to arms among UK supermarkets - a move that impressed investors initially but became less rosy when those staff acquisition costs started to weigh on profits.
Netflix and Snap join Microsoft in the standout tech results next week. Again, user numbers will be in focus but what the firms have spent to get them, as they vie for entertainment supremacy, is just as important.
The next few weeks will also feature updates from the heavy hitters in pharmaceuticals, industrials and consumer goods - for a steer on what our investment director Tom Stevenson makes of it all, check out his latest Investment Outlook webcast which will be available on Wednesday 15 July. You can submit your questions to him beforehand here.
Five year performance
|(%) As at 30 June||2015-2016||2016-2017||2017-2018||2018-2019||2019-2020|
Past performance is not a reliable indicator of future returns
Source: Refinitiv, total returns as at 30.6.20, in local currency
Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.