Will profits keep the bull market roaring?

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Wall Street again showed its resilience on Monday. After opening the weaker trading session, the major market benchmarks ended it with solid gains, and the S&P 500 (SNPINDEX: ^ GSPC) and Nasdaq Composite (NASDAQINDEX: ^ IXIC) break all-time records again. the Dow Jones Industrial Average (DJINDICES: ^ DJI) fell just below the 35,000 mark.

Index

Percent change

Point change

Dow

0.36%

126

S&P 500

0.35%

15

Nasdaq Composite

0.21%

31

Data source: Yahoo! Finance.

On any given trading day, there are almost always at least a few companies that release their latest financial results, but the number of earnings releases always starts to increase around the second week of the quarter. Later this week, banks and airlines will begin releasing their latest quarterly figures. You can bet investors around the world will be watching these reports closely for signs that the US stock market may maintain its bullish momentum in the second half of 2021.

Building on a solid future

Bank stocks will dominate the start of the earnings season this week. Goldman Sachs (NYSE: GS) and JPMorgan Chase (NYSE: JPM) start things Tuesday morning, while Bank of America (NYSE: BAC), Citigroup (NYSE: C), and Wells fargo (NYSE: WFC) deliver their results on Wednesday. Morgan stanley (NYSE: MS) and US Bancorp (NYSE: USB) are among the financial institutions that presented their report on Thursday.

Most banks will show much better net numbers than last year. For example, analysts expect JPMorgan to more than double its earnings per share from a year ago, while Goldman’s quarterly earnings are expected to return to near their pre-pandemic norms after almost completely vanishing. in the second quarter of 2020. The main driver behind these gains is that banks are not reserving funds against potential loan losses right now as they were around this time last year, and that many institutions are feeling even comfortable enough to release part of their reserves, which will further strengthen their results.

Investors want to see banks share in the wealth, and many have already revealed their intention to return capital to shareholders through a combination of higher dividends and larger share buybacks. Still, interest rates have recently come down after a prolonged uptrend throughout the first part of 2021, which has left some banking investors less excited about the future. If banks fail to convince shareholders that they can get through an even longer period of tighter net interest margins, then the gains they have seen so far in 2021 could evaporate – and that would remove a key foundation from this year’s bull market.

Image source: Delta Air Lines.

Learn to fly?

Meanwhile, airline investors will get a glimpse of how the earnings season could play out when Delta Airlines (NYSE: DAL) announces its results Wednesday. Other airlines are not expected to share their figures until next week.

The history of the turnaround for Delta will not be as quick as it is for the big banks. The Atlanta-based airline will almost certainly report that it lost money in the second quarter, albeit at a much slower pace than a year ago. Those who follow the stock don’t expect Delta to return to profitability until 2022 at the earliest, even as revenues skyrocket from last year, when the pandemic nearly wiped out air travel. in spring.

Investors will be watching a number of factors, including the impact of the Delta variant on domestic and international travel, capacity and labor issues, aircraft orders and purchases, and fuel costs. . Airlines shares have retreated from their highs a few months ago, but their direction from here will depend heavily on their ability to maintain momentum or whether COVID-19 resurgences cause new problems for the airline. businesses.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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