🥇 First rule of investing? Know when to save! Up to 55% off InvestingPro before BLACK FRIDAYCLAIM SALE

Big-Name Earnings Hit The Tape So What Do The Options Say?

Published 24/10/2022, 12:29
US500
-
MSFT
-
GOOGL
-
AAPL
-
AMZN
-
XOM
-
IXIC
-
META
-
XLE
-
GOOG
-
  • Major tech/media/telecom firms report Q3 results this week
  • S&P 500’s earnings growth solid so far, but maybe not so much with a few tweaks
  • With the VIX near 30, volatility is elevated.
  • Earnings season is off to a decent start. According to FactSet, the S&P 500’s EPS beat rate through last Friday was a solid 72%. Of course, that figure uses per-share profit estimates that have come way down from June 30. At the end of the second quarter, it was forecast that the S&P 500 would feature robust Q3 earnings growth of 9.9%. Fast forward to October, and analysts reduced their outlook so that aggregate EPS would be higher by just 1.5% for the previous quarter, the lowest since Q3 2020, according to John Butters at FactSet.

    Back out the XLE sector’s massive 116.4% bottom-line surge, and the year-on-year climb in operating profits is negative at –4.9%. We can play with the math further and find an inflation-adjusted figure which is near –13%. Finally, GAAP earnings are tracking negative by 2.7%, according to Charlie Bilello. So, while there’s a solid headline earnings beat rate, some stats show declines from the same quarter a year ago. Thus, you can make any narrative that pleases you.

    Energy Leads Q3 SPX Earnings Growth

    S&P 500 Earnings Growth: Q3 2022

    But there’s no debate that this week is huge for the corporate world. Much of the S&P 500’s market cap unveils third-quarter earnings over the ensuing days. Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL), Meta Platforms (NASDAQ:META), Apple (NASDAQ:AAPL), and Amazon (NASDAQ:AMZN) issue results on the evenings of Tuesday, Wednesday, and Thursday. Juggernauts from sectors outside of TMT will shed light on other parts of the economy, too.

    Massive Earnings Week Ahead

    Top Earnings Annoucements

    Source: Wall Street Horizon

    Wall Street Horizon notes that while Thursday features the highest number of reporters for the week, it’s actually the following two weeks that show the greatest number of earnings releases for companies around the world. Meanwhile, we will get a Fed meeting on Nov. 2 and, of course, the U.S. midterm elections on Nov. 8 with a jobs report in between. Get ready for more volatility.

    Traders have not priced in exceedingly high volatility, however. According to Goldman Sachs, implied stock price swings before results cross the wires are somewhat low when you back out broader volatility trends. So, perhaps there’s more bark than bite so far this earnings season. That could all change after this Friday, though.

    Much Hoopla, But Implied Stock Price Moves Are Near Average

    Implied Move Ahead Of Earnings

    Source: Goldman Sachs Investment Research

    Let’s dig into the biggest of all the market-moving stocks providing quarterly results this week: Apple. According to data from Option Research & Technology Services (ORATS), traders have priced in a 4.3% earnings-related stock price move following its report Thursday AMC. That is about in-line with previous quarterly releases while the expected $1.26 of EPS would be just a 1.6% earnings growth rate from the same period last year.

    There’s a bullish tone in place as, per ORATS, there have been seven analyst upward EPS revisions of the stock and zero downward changes since the July report. I expect the bottom-line figure to top expectations, as has been the historical norm, while the stock could trade lower Friday—AAPL has a weak post-earnings reaction trend.

    AAPL: Modest Profit Growth Expected, Strong EPS Beat Rate Trend

    Apple Earnings
    Source: ORATS

    Here are some other key names and their implied moves using straddle pricing: Microsoft 4.4%, Alphabet 5.4%, Amazon 6.3%, Meta 11.1%, ExxonMobil (NYSE:XOM) 3.2%.

    The Bottom Line

    We are slowly getting more clarity on what the “E” will be. At least for the near term. Eyes are gradually focusing on earnings uncertainty for the full year which shows a wide dispersion of estimates, according to Morgan Stanley. Expect to hear about what the future might hold in key guidance this week and through mid-November as this reporting season unfolds.

    EPS Uncertainty for Full-Year 2022

    Sell Side Earnings Estimates

    Source: Morgan Stanley

    Disclaimer: Mike Zaccardi does not own any of the securities mentioned in this article.

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.