Will Earnings Season Bring Volatility To The Stock Market?

The Commerce Department last week reported that the U.S. economy grew at a +6.4% annual rate in the first quarter, slightly below estimates but still strong. If it would have come in real hot and much higher bears would have pointed to fanning the inflation flames even further.

This mindset of “bad-news-could-be-good-news” is helping to keep the stock market at or near all-time highs. If economic data somewhat disappoints it means the Fed stay dovish and accommodative for longer.

Fundamental analysis

That might be important to keep in mind as April data starting this week is expected to be extremely good. The April Employment Report is due next Friday and with upper-end of Wall Street estimates look for upwards of +1 million new jobs being added. Other key April data next week includes the ISM Manufacturing Index on Monday, and the ISM Non-Manufacturing Index on Wednesday.

employment

If the data comes in better than expected the bears will win the nearby battle and have the upper hand when talking higher inflation and the Fed perhaps tightening sooner than anticipated. So this week could be a bit tricky whereas “disappointing-data” could actually be digested as a win for the bulls and “strong data” a win for the bears.

The earnings calendar is packed again next week with big names including Activision Blizzard, Adidas, AllState, Cerner, Cigna, CVS, Dominion Energy, Enbridge, Etsy, Hilton Worldwide, Moderna, Monster Beverage, Nintendo, PayPal, Peloton, Pfizer, Rocket Companies, Square, TMobile, Wayfair, and Zoetis.

COVID-19

Checking in on U.S. progress against Covid-19, the number of adults that have received at least one dose is around 60%-65%, depending on the source. Global cases continue to rise led by India, where new infections have been hitting new record highs every day for weeks now. The country reported a staggering 380k new infections and 3,645 new deaths on Thursday while less than 10% of the population has been vaccinated.

Bottom line, the global restart will not be synchronized like many bulls had hoped would be the case and global growth may continue to struggle. At the moment the U.S. market doesn’t seem to care. It will be interesting to see if increasing inflation and continued global headwinds will eventually come home to roost.

SP500 technical analysis

SP500 earnings season

Earnings season can bring volatility to the stock market. At the beginning of May, cycles turn to the downside. Note, this is only a timing tool and it never shows the amplitude or strength of the move. When cycles are topping, it means we can expect a move down or choppy trading. This is it.

But relying on cycles only is not a good idea. Insider Accumulation Index shows bearish divergence on a daily chart. At the same time, Advanced Decline Line is still strong. The key resistance is around 4250 at the moment. I believe earning season can bring a profit booking to the stock market. If that happens, watch 4000 – 39500. It was a massive resistance and now it might turn into support. Intermarket Forecast is neutral. But if it turns to the downside, we will finally see a pullback in SP500.

For a look at all of today’s economic events, check out our economic calendar.

Canadian Pipeline Operator Enbridge Upgrades 2021 Core Earnings, Dividend Forecasts

Enbridge, a Canadian multinational energy transportation company, upgraded their next year core earnings and annual dividend forecasts, largely driven by volume recoveries in its Liquids Mainline System and downstream pipelines.

Canadian pipeline operator forecasts 2021 EBITDA between C$13.9 billion to C$14.3 billion, higher than this year’s forecast of nearly C$13.7 billion, and distributable cash flow per share of between $4.70 to $5.00 per share.

Enbridge said its quarterly dividend for 2021 will be increased from $0.81 to $0.835 per share, commencing with the dividend payable on March 1, 2021, to shareholders of record on February 12, 2021.

Enbridge’s shares closed 0.3% lower at $33.28 on Monday; the stock is down over 15% so far this year.

Executive Comments

“In the near-term, our Plan continues to prioritize the execution of our $16 billion secured growth program, of which approximately $6 billion has already been spent, and are expected to deliver approximately $2 billion of incremental EBITDA from 2021 to 2023,” noted Al Monaco, President and CEO of Enbridge.

“Over the medium and longer-term, Enbridge’s diversified asset base, integrated infrastructure networks and extensive reach provide us with many opportunities to invest our expected post- Line 3 annual investment capacity of $5-6 billion. We will, however, stay true to our investment discipline, deploy capital to the best uses, and stick to what we know best,” Monaco added.

Enbridge Stock Price Forecast

Ten equity analysts forecast the average price in 12 months at $40.40 with a high forecast of $46.11 and a low forecast of $35.95. The average price target represents a 21.39% increase from the last price of $33.28. All those 10 analysts rated “Buy”, none rated “Hold” or “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of C$54 with a high of C$68 under a bull-case scenario and C$31 under the worst-case scenario. The firm currently has an “Overweight” rating on the energy transportation company’s stock. Wells Fargo raised the price target to C$46 from C$44, raises to overweight rating from equal weight.

Several other analysts have also upgraded their stock outlook. Enbridge has been given a C$50 target price by equities researchers at Tudor Pickering & Holt. The firm currently has a “buy” rating on the stock. TD Securities decreased their price target to C$53 from C$57 and set a “buy” rating for the company. National Bank Financial decreased their price target to C$55 from C$56 and set an “outperform” rating. Royal Bank of Canada reduced their target price to C$52 from C$58 and set an “outperform” rating.

Analyst Comments

“One of the most utility-like business models: minimal commodity and volume exposure, highly stable and diverse set of crude oil and natural gas pipelines, and a modestly growing utility business. Stable, self-funding equity model and potential positive cash flow generation create capacity for organic reinvestment, long-lived projects, and flexibility for potential share repurchases,” said Stephen Byrd, equity analyst at Morgan Stanley.

“Relatively limited variability to current operating environment positions ENB as a defensive alternative,” Byrd added.

Upside and Downside Risks

Upside Risks: 1) Regulatory approvals for Line 3/Line 5 projects. 2) Regulatory approval/contracting of the Mainline system to replace the Competitive Toll Settlement. 3) Execution on Mainline optimization initiatives and downstream expansions- highlighted by Morgan Stanley.

Downside Risks: 1) Legal challenges stop Line 3/Line 5 projects from moving forward. 2) Risk on producer-facing Northeast gas pipeline contracts. 3) Growth slows as new projects prove difficult to source.