While the New Year is typically a time to look ahead, investors will be peering backward for a short time this week as the start of the fourth-quarter earnings season begins.
Earnings have emerged as the driver of equity market gains south of the border, making these results all the more meaningful. The consensus estimate is for earnings of S&P 500 companies to increase by 4 per cent year-over-year, which, if realized, would likely propel the index to fresh all-time highs.
The unofficial kick-off to fourth-quarter reporting begins with Alcoa Inc.'s release on Monday. The former Dow component is considered to be somewhat of a bellwether for the global economy because of its expansive customer base and the widespread uses of aluminum, which can be found in everything from household appliances to cars and packaging.
The real start to earnings season, however, will come on Wednesday, when the major U.S. financials begin to report.
JPMorgan Chase & Co. and Wells Fargo & Co. are up first followed by Bank of America Corp. and Citigroup Inc. on Thursday, and Goldman Sachs Group Inc. on Friday.
The flattening yield curve continues to be the bane of the banks, as it reduces the spread between the rate they pay to depositors and the rate that borrowers are charged. The sector's dividend yield has dipped a full percentage point to 1.7 per cent since the previous bull market peaked in 2007, a legacy of damage caused by the housing bust. Capital markets trading revenues are likely to be volatile, especially for banks with large commodities trading desks. Loan growth, and mortgage originations in particular, will paint a portrait of the prospects for the broader U.S. economy, which the world is relying upon to prop up global activity as China's growth rate moderates.
Another key name to watch will be Schlumberger Ltd., which reports on Thursday. The world's largest oil-field services company has seen its share price slump by more than 30 per cent from its record high in late June amid the precipitous decline in the price of oil.
A daunting amount of capital expenditure cuts in the energy sector will pressure both margins and sales for the oil-field services industry. Schlumberger is expected to weather this rough patch better than its smaller peers, but its financial results will not be immune from this development. Ahead of this release, analysts at Credit Suisse cut their price target and 2015 earnings-per-share estimate by 11 and 20 per cent, respectively.
In Canada, attention sits squarely on the extent to which low oil prices will drag on energy companies' earnings and cash flow. In what might be a portent of future downward revisions, analysts at Citigroup recently reduced their price targets for every energy exploration company in their coverage universe. The "Goldilocks" era for this segment is over, said Citigroup analyst Robert Morris, and "the near-term outlook has turned quite dire." Investors may have to wait until early February when the heavyweight in the space, Suncor Energy Inc., posts its results to get a handle on the severity of this shock.
A number of junior energy companies are scheduled to provide quarterly updates next week, which may offer the first glimpse at how the industry is coping with prices it hasn't seen since the aftermath of the financial crisis.
The most notable Canadian company to report earnings next week is Shaw Communications Inc., on Wednesday. The $8.99-per-month Shomi streaming service, which it launched in partnership with Rogers Communications Inc. in the fourth quarter, will not have a large effect on the company's financial results at this time, though any detail on its initial reception could serve as a catalyst for the stock. Cost controls, subscriber counts and the outlook for data centre and cloud services provider ViaWest Inc., an acquisition which closed in September, will also be analyzed closely by investors.