Earnings spotlight rotates to aerospace stocks

  • Aerospace and defense stocks figure prominently in next week’s earnings
  • A&D stocks outperformed market after last earnings cycle
  • Other stocks in industry may draft on the initial earnings results

If you’re looking for a reason why the financial sector has led the S&P 500 (SPX) over the past five days, take a look at a calendar.

Around three months ago, when the financial sector went from the SPX’s worst sector for the week ending January 14 to its top-performing sector one week later, it probably wasn’t a coincidence that it was the beginning of earnings season—which, traditionally, fires up with a few big banks releasing their quarterly numbers.

If those initial reports are well-received, financial stocks as a whole can get a bump, as traders anticipate more of the same. To wit: The recent financial sector strength has come as the current earnings season kicked off on April 12 with unexpectedly strong earnings reports from big banks.

This pattern isn’t a shoo-in, by any means. When last October’s earning season got underway, for example, financials went south—along with just about every other sector—as bears grabbed hold of the market for the next two months. But with favorable conditions prevailing—say, a broad-market uptrend and an absence of bearish shocks—earnings season can potentially dial up the bullish flames under various stocks as it rotates through different sectors and industries.

Next up, aerospace and defense.

Rockwell Automation (ROK), Raytheon (RTN), Lockheed Martin (LMT), Northrop Grumman (NOC), 12/31/18–4/17/19. Rockwell Automation (ROK), Raytheon (RTN), Lockheed Martin (LMT), Northrop Grumman (NOC) price chart. Aerospace and defense YTD returns.

Source: Power E*TRADE

The chart above shows three aerospace and defense stocks—Raytheon (RTN), Lockheed Martin (LMT), and Northrop Grumman (NOC)—scheduled to report earnings next week. After outpacing the SPX (white line) earlier in the year, all three stocks are currently in the SPX’s year-to-date return neighborhood of 17%—RTN and LMT a little above, and NOC slightly below.

The stocks really began outperforming the SPX toward the end of January, which is when they last reported earnings. Whether a similar pattern asserts itself this time around—and whether other defense stocks go along for the ride—will no doubt depend on whether the Street likes their numbers, and whether the market as a whole is still on the upswing. But a more detailed look at the last earnings season may be educational:

Post-earnings returns. Heico (HEI). HEI rallied with reporting stocks.

Source: Power E*TRADE

The chart above shows the percentage returns for RTN, LMT, and NOC five and 10 days after their respective earnings releases during the week of January 28–February 1. The far right shows the five- and 10-day returns for another aerospace and defense stock, Heico (HEI), measured from Friday, January 25.

This chart shows that while all three stocks rallied after their earnings releases (with RTN putting up the biggest gains), HEI, which didn’t release its own quarterly numbers until February 26, also staged a sizable rally in the wake of these reports.

While HEI’s rally can’t be attributed solely to the favorable tailwinds provided by its aerospace brethren, their bullish behavior after releasing earnings couldn’t have hurt.

Note: LMT is scheduled to release earnings next Tuesday, NOC on Wednesday, and RTN on Thursday. HEI’s earnings are due out in late May.

Market Mover Update: Qualcomm (QCOM) followed up on Tuesday’s 23% surge with a 10%-plus rally yesterday. Away from the tech spotlight, Proctor & Gamble (PG) topped Tuesday’s high by a penny to rack up its 24th record high since February 1, maintaining its pace of averaging a new all-time high nearly every other day.

Today’s numbers (all times ET): Retail Sales (8:30 a.m.), Business Inventories (10:00 a.m.), Leading Indicators (10:00 a.m.), EIA Natural Gas Report (10:30 a.m.).

Today’s earnings include: Ally Financial (ALLY), American Express (AXP), BB&T (BBT), Blackstone (BX), Check Point Software (CHKP), Citizens Financial Group (CFG), Danaher (DHR), Honeywell (HON), KeyCorp (KEY), Philip Morris (PM), Schlumberger (SLB), SunTrust Banks (STI), Taiwan Semi (TSM), Union Pacific (UNP).


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