This week’s marquee earnings and economic data reports will mostly take place later in the week, with the majority of the Big Tech or FAANG (Facebook, Amazon, Apple, Netflix and Google’s parent, Alphabet) stocks reporting earnings after market close on Thursday.
Also Thursday morning, on the economic data front, the Bureau of Economic Analysis will release the first print on third-quarter U.S. gross domestic product (GDP), offering a first holistic look at the rebound in economic activity that took place after lockdowns lifted in late spring.
Big Tech earnings
Big Tech stocks’ run-up has cooled somewhat in the months since these companies last reported earnings results over the summer. Since July 30, Amazon (AMZN) underperformed the broader market, rising 5% versus the S&P 500’s 6.8% gain. Alphabet (GOOG, GOOGL) tracked about in-line with the S&P 500, while Facebook (FB) and Apple (AAPL) each gained about 19% over that period.
Ahead of these companies’ reports, Snap (SNAP), the parent company of the disappearing photo-sharing app, posted third-quarter results that blew away expectations, setting the bar high for ad-driven tech companies. Revenue grew more than 52% as the company added more than 11 million daily active users during the third quarter, for a gain of 19%.
“The set-up for Thursday 10/29 when all four report is getting more challenging post SNAP, but we expect the ‘rising tide’ of e-commerce use and DR [direct revenue] advertising to broadly justify stock moves,” BMO Capital Markets analyst Daniel Salmon said in a note Friday.
“We like GOOGL most into the [quarterly reports] as it has the worst sentiment and investors know travel is still bad; we believe retail strength can offset, while recovery of brand advertising and a burgeoning Connected TV story at YouTube are under-appreciated,” he added. Last quarter, Alphabet’s stock sold off after the company posted its first-ever drop in revenue, as customer companies trimmed their advertising budgets during the pandemic.
“As we go into 2021, we also think investors will return more attention to the cloud businesses of GOOGL and our #2 preference in this group, AMZN, which is the only one for which we raised ad revenue growth in both 2020 and 2021,” Salmon added.
Amazon, for its part, reported record profit during the second quarter as net income doubled to $5.2 billion, driven by a jump in online shopping during the height of stay-in-place orders. The company’s results this week will exclude any windfall from its annual Prime Day shopping holiday, which was pushed off by three months this year to October due to the pandemic and took place after the end of the third quarter.
Facebook is also set to report on the heels of a strong second-quarter, during which revenue jumped 11% to $18.7 billion as ad spending began to ramp in May and June as stay-in-place orders lifted. But the easing of lockdowns is also expected to have reduced user engagement on the platform, as users found alternatives to scrolling through social media: The company said in July it expected to see daily and monthly active users moderate and be “flat or slightly down in most regions during the third quarter.”
Though the company endured a boycott from some major advertisers at the start of the quarter, a number of Wall Street analysts suggested the overall rebound in online ad spending from mid-summer to early fall likely provided a meaningful boost to Facebook’s results. Bank of America analysts said in a note Friday that they expected third-quarter results to come in above consensus estimates given a “robust” online ad rebound, based on their advertising checks. The analysts expect Facebook to have accelerated its revenue growth to 14% during the third quarter, versus consensus expectations for a rise of 12% to $19.8 billion.
Finally, Apple’s sales are expected to come in roughly flat over last year at $64 billion, following an 11% jump in the second quarter that had been driven by Mac and iPad sales earlier during the period. The company unveiled its latest 5G-enabled iPhone 12 about a month later than typical due to the virus, with analysts likely to home in closely on the company’s outlook for handset sales heading into the holiday season.
Each of these earnings results also comes as Washington increasingly steps up its scrutiny of some of the biggest internet giants. The Department of Justice and 11 states last week filed an antitrust lawsuit against Google, accusing its search and advertising business of running an illegal monopoly. And the CEOs of Twitter, Alphabet and Facebook are set to appear before the Senate Committee on Commerce, Science and Transportation Wednesday morning to discuss Section 230 of the Communications Decency Act, which has to date helped protect online platforms from liability over user-created content.
U.S. GDP is expected to have risen by a record amount in the third quarter over the second quarter, after pandemic-induced lockdowns and stay-in-place orders drove the worst-ever single-quarter drop in economic activity earlier this year.
Third-quarter GDP is expected to rise at a seasonally adjusted annualized rate of 31.8%, according to Bloomberg data as of Friday, following a 31.4% slump in the second quarter.
Consumer spending and residential housing activity are expected to be the strong points in the report, given the strength in both retail sales and housing market data evident over the course of the summer. Retail sales grew during each of the three months during the third quarter, and most recently for September grew at a 1.9% pace, or double the consensus estimate for the month.
Thursday’s report is expected to show that personal consumption — which comprises about two-thirds of domestic economic activity — rebounded by 38.7% after a 33.2% drop in the previous quarter.
For at least the first month of the third quarter, unemployed Americans were still receiving an augmented $600 per week in federal unemployment benefits, offering an additional level of support to spending on top of the $1,200 stimulus checks deployed earlier on during the spring.
“Stimulus checks and expanded unemployment benefits have significantly boosted household incomes, which likely fueled a rapid recovery in consumer durable goods spending. Low mortgage rates and a need for more livable space has likewise generated a swift bounce-back in home sales and residential construction,” Wells Fargo economists led by Jay Bryson wrote in a note Friday. “Business investment has also likely turned up, although nonresidential construction is still weak alongside rising vacancy rates and depressed drilling activity in the oil and gas sector.”
While the third-quarter GDP print will give a comprehensive look at the July through September period, investors are mostly already looking ahead. To that end, jitters around whether another COVID-19 wave might occur during the winter, along with uncertainty around the election outcome and timing of another virus-relief bill, have pulled focus for investors.
“Overall, the fact that 3Q will be an impressive quarter (on the heels of significant damage in 2Q) is already baked in the cake,” RBC Capital Markets economists wrote in a note Friday. “Going forward, we find significant uncertainty in growth given the wide dispersion of potential COVID outcomes. As we highlighted in a recent note, our range of possible 4Q GDP outcomes spans from -7% to +7%”
Tuesday: Centene Corp (CNC), Caterpillar (CAT), Invesco (IVZ), Eli Lilly (LLY), Pfizer (PFE), Merck & Co. (MRK), The Sherwin Williams Company (SHW), Stanley Black & Decker (SWK), Raytheon (RTX), Crocs (CROX), Harley-Davidson (HOG), 3M (MMM), JetBlue (JBLU), S&P Global (SPGI) before market open; Akamai (AKAM); FireEye (FEYE), Microsoft (MSFT), Advanced Micro Devices (AMD) after market close
Wednesday: Anthem (ANTM), Blackstone (BX), General Electric (GE), Amgen (AMGN), Boeing (BA), Tupperware Brands (TUP), Six Flags Entertainment Corp (SIX), Mastercard (MA) before market open; Ford (F), O’Reilly Automotive (ORLY), ServiceNow (NOW), Etsy (ETSY), Pinterest (PINS), Western Digital Corp. (WDC), Gilead Sciences (GILD), Grubhub (GRUB), Visa (V), eBay (EBAY), Teladoc (TDOC), Spirit Airlines (SAVE), Concho Resources (CXO) after market close
Thursday: Yum! Brands (YUM), Shopify (SHOP), Newmont Corp (NEM), ConocoPhillips (COP), Apollo Global Management (APO), PG&E Corp (PCG), Molson Coors (TAP), Moody’s Corp. (MCO), Moderna (MRNA), Tapestry (TPR), Comcast (CMCSA), Kraft Heinz (KHC), Keurig Dr. Pepper (KDP), Dunkin’ Brands (DNKN), Overstock.com (OSTK) before market open; T Rowe Price (TROW), Kellogg (K), Twitter (TWTR), Shake Shack (SHAK), Cheesecake Factory (CAKE), Mohawk Industries (MHK), Apple (AAPL), MGM Resorts International (MGM), WW International (WW), Starbucks (SBUX), Facebook (FB), United States Steep Corp. (X), Avis Budget Group (CAR), Activision Blizzard (ATVI), Amazon (AMZN), Alphabet (GOOG, GOOGL) after market close
Monday: New Home Sales month-over-month, September (1.3% expected, 4.8% in August); Dallas Fed Manufacturing Activity Index, October (13.3 expected, 13.6 in September); Chicago Fed National Activity Index, September (0.6 expected, 0.79 in August)
Tuesday: Durable Goods Orders, September preliminary (0.5% expected, 0.5% in August); Durable Goods Orders Excluding Transportation, September preliminary (0.3% expected, 0.6% in August); Capital Goods Orders Non-Defense Excluding Aircraft, September preliminary (0.7% expected, 1.9% in August); Capital Goods Shipments Non-Defense Excluding Aircraft, September preliminary (1.5% in August); FHFA House Price Index month-over-month, August (0.6% expected, 1.0% in July); S&P CoreLogic Case-Shiller 20-City Composite Home Price Index month-over-month, August (0.4% expected, 0.55% in July); S&P CoreLogic Case-Shiller 20-City Composite Home Price Index year-over-year, August (4.2% in August, 3.95% in July); Conference Board Consumer Confidence, October (101.6 expected, 101.8 in September); Richmond Fed Manufacturing Index, October (18 expected, 21 in September)
Wednesday: MBA Mortgage Applications, week ended October 23 (-0.6% during prior week); Advanced Goods Trade Balance, September (-$85.0 billion expected, -$82.9 billion in August); Wholesales Inventories month over month, September preliminary (0.4% expected, 0.4% in August); Retail Inventories month-over-month, September (0.8% in August)
Thursday: Initial jobless claims, week ended Oct. 24 (783,000 expected, 787,000 during prior week); Continuing jobless claims, week ended Oct. 17 (7.700 million expected; 8.373 million during prior week); GDP Annualized quarter-over-quarter, 3Q advanced print (31.8% expected, -31.4% during 2Q); Personal Consumption, 3Q advanced print (38.7% expected, -33.2% during 2Q); GDP Price Index, 3Q advanced print (2.9% expected, -1.8% in 2Q); Core PCE quarter over quarter, 3Q advanced print (4.0% expected, -0.8% in 2Q); Pending Home Sales, September month-over-month (3.0% expected, 8.8% in August)
Friday: Personal income, September (0.3% expected, -2.7% in August); Personal Spending, September (1.0% expected, 1.0% in August); PCE Deflator month-over-month, September (0.2% expected, 0.3% in August); PCE Core Deflator month-over-month, September (0.2% expected, 0.3% in August); PCE Core Deflator year-over-year, September (1.7% expected, 1.6% in August); Employment Cost Index, third quarter (0.5% expected, 0.5% in August); MNI Chicago PMI, October (58.0 expected, 62.4 in September); University of Michigan Sentiment, October (81.2 expected, 81.2 in September)
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
Read more from Emily: