Third-quarter earnings are set to ramp further this week, after an auspicious start to the reporting season saw many of Wall Street's biggest bank beat consensus expectations, with new reads on the housing market also in focus.
Big banks from JPMorgan Chase (JPM) to Goldman Sachs (GS) kicked off the Q3 earnings season with considerable momentum, helping fuel investor optimism that profits held up more strongly than expected. Yet rising input prices, labor costs and supply chain disruptions are still casting a shadow over corporate America.
As of Friday, the expected earnings growth rate for the S&P 500 was 30%, according to FactSet. That figure — based on both actual earnings from companies that have reported so far and expectations for future results — represented an increase from the prior week, when the anticipated earnings growth rate for the third quarter stood at about 27.6%.
This week, companies spanning a range of industries are set to post results, offering more details about how lingering virus-related disruptions and supply-side constraints have impacted different companies, especially heading into the key holiday season.
One closely watched name will be Netflix (NFLX), which, as usual, will be the first Big Tech company to reveal its performance for the quarter ended in September. The streaming giant will report on Tuesday after market close.
Except for Google's parent-company Alphabet, each of the high-flying so-called "FAANG" tech stocks have underperformed the S&P 500 so far this year, as traders rotated away from the winners of the stay-at-home era of 2020. Netflix shares have risen 16.2% for the year-to-date, versus the S&P 500's gain of 19% over that same timeframe.
After a marked slowdown in subscriber growth in the first half of 2021, many Wall Street analysts are expecting to see the start of a turnaround for Netflix heading into the final months of the year. Netflix had added just 5.52 million net subscribers total in the first and second quarters this year, compared to a record 25.86 million additions in the first half of 2020 at the height of pandemic-era stay-in-place orders.
A robust slate of content is likely to be the main driver of new users for Netflix, even as the company faces an increasingly competitive streaming landscape from the likes of rivals like Disney+ (DIS).
The release of hit Korean television series "Squid Game" in mid-September is expected to be one marquee piece of content contributing to further upside. Netflix said last week the series reached 111 million viewers, making it the largest series launch in company history.
For Q3, consensus analysts expect Netflix to add 3.7 million net paid subscribers, according to Bloomberg data, with this sum coming in slightly ahead of the company's own forecast from July for 3.5 million net additions. But given "Squid Game" was released at the tail end of the quarter, the streamer could be in for a bigger gain in the final three months of the year, some analysts suggested.
For the fourth quarter, "we see the continuation of some of the highly-viewed and highly-rated Netflix TV shows to likely drive subscriber growth and we expect 4Q guidance ... will tell us more on whether or not Netflix can get back to its pre-COVID 25 million+ net sub adds/year trend," Bank of America analyst Nat Schindler wrote in a note last week.
He rates Netflix a Buy with a price objective of $680 per share, and said he expects the company to guide toward 7.7 million net subscriber additions for the fourth quarter.
Updates on new business areas will also be in focus in Netflix's results. The company said last quarter that it would be investing in video gaming, focused initially on mobile games. And Netflix announced late last month it was acquiring its first gaming studio, Night School Studio.
Investors are also set to closely monitor a slew of data on the U.S. housing market this week, as materials shortages and concerns around affordability continue to weigh on the sector.
Tuesday's housing starts report from the Commerce Department is expected to be one print illustrating these ongoing pressures. Consensus economists expect to see the pace of new homebuilding come in unchanged in September, compared to August, or at a seasonally adjusted annualized rate of 1.615 million. This would follow a 3.9% monthly jump in August, though this increase was flattered by a boost in volatile multi-family housing starts in the Northeast.
"Over the next few months ... we have to expect single-family starts to drift lower, returning—like new home sales—to their pre-Covid level," Ian Shepherdson, chief economist for Pantheon Macroeconomics, wrote in a note published Sept. 21. "The flight to the [suburbs] which triggered the boom in home sales, prices, and construction activity is over, though mortgage demand has nudged back up in the past two months."
Likewise, building permits, which serve as an indicator of future homebuilding, are expected to pull back by 2.4% in September, reversing course after a 5.6% rise in August.
Later in the week on Friday, the National Association of Realtors will release its report on existing home sales.
Sales of previously owned homes are expected to have picked up to post a 3.3% monthly increase September following a brief drop in August, which had represented the first decline in three months. Housing inventory levels had also fallen for the first time in six months in August, leaving housing supply for the third quarter-to-date still below levels from the same period last year, but up compared to the second quarter of 2021.
"Rising inventory have pulled some buyers back into the market, but affordability still remains a big challenge with home prices reaching record highs," Michelle Meyer, U.S. economist for Bank of America, wrote in a note on Friday.
Monday: Industrial production, month-over-month, September (0.2% expected, 0.4% in August); Capacity utilization, September (76.5% expected, 76.4% in August); NAHB Housing Market Index, October (75 expected, 76 in September); Total Net TIC Flows, August ($126.0 billion in July); Net long-term TIC flows, August ($2.0 billion in July)
Tuesday: Building permits, month-over-month, September (-2.4% expected, 5.6% in August); Housing starts, month-over-month, September (0.3% expected, 3.9% in August)
Wednesday: MBA mortgage applications, week ended Oct. 15 (0.2% during prior week); Federal Reserve releases Beige Book
Thursday: Initial jobless claims, week ended Oct. 16 (303,000 expected, 293,000 during prior week); Continuing claims, week ended Oct. 9 (2.550 million expected, 2.593 million during prior week); Philadelphia Fed Business Outlook, October (24.0 expected, 30.7 in September); Leading Index, September (0.4% expected, 0.9% in August); Existing Home Sales, September (6.05 million expected, 5.88 million in August)
Friday: Markit U.S. manufacturing PMI, October preliminary (60.4 expected, 60.7 in September); Markit U.S. services PMI, October preliminary (55.2 expected, 54.9 in September); Markit U.S. Composite PMI, October preliminary (55.0 in September)
Tuesday: Synchrony Financial (SYF), Bank of New York Mellon (BK), Fifth Third Bancorp (FITB), Johnson & Johnson (JNJ), Procter & Gamble (PG), Halliburton (HAL), The Travelers Cos. (TRV), Kansas City Southern (KSU), Phillip Morris International (PM) before market open; Netflix (NFLX), United Airlines (UAL) after market close
Wednesday: Anthem (ANTM), Citizens Financial Group (CFG), Nasdaq (NDAQ), Baker Hughes (BKR), Abbott Laboratories (ABT), Biogen (BIIB), Verizon Communications (VZ) before market open; IBM (IBM), Equifax (EFX), Tesla (TSLA), Kinder Morgan (KMI), Las Vegas Sands Corp. (LVS) after market close
Thursday: Danaher (DHR), Dow Inc. (DOW), Valero Energy (VLO), AT&T (T), Quest Diagnostics (DGX), Alaska Air Group (ALK), American Air Lines (AAL), Pool Corp. (POOL), Southwest Airlines (LUV), Union Pacific (UNP) before market open; Chipotle Mexican Grill (CMG), Whirlpool (WHR), Intel (INTC) after market close
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck