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Another corporate earnings season is set to begin, and analysts evaluate how that could be a positive catalyst for global stocks in the weeks to come. Image Credit: AP

Dubai: Another corporate earnings season is set to begin, and analysts evaluate how that could be a positive catalyst for global stocks in the weeks to come.

What is widely expected to be largely an upbeat first-quarter company earnings, top US banks will be the first to report this week, setting the tone for the remainder of the season.

Stocks to rise this week

On the economic front, there is some key figures, the most watched of which is the US consumer price index data out on Tuesday – which will be closely eyed by investors after a surprise jump in inflation in March.

In the US stock markets, which are tracked by indices worldwide, key benchmarks, the Dow and S&P 500, are seen starting the week at record highs after a strong rally on Friday.

The Dow rose nearly 2 per cent last week, while the S&P 500 gained 2.7 per cent. The Nasdaq gained the most, rising 3.1 per cent. The Russell index was down 0.5 percent.

Upbeat US earnings

With the S&P 500 index at record highs, valuations are stretched heading into the season, leaving some investors looking to earnings for further support.

US Federal Reserve chairman Jerome Powell, in comments this past week, continued to reinforce that the central bank will keep its easy policies in place for a long time, and that any emergence of inflation should be temporary.

However, a key US price inflation data released last Friday, which came in much higher than expected, has made the consumer price index release Tuesday even more crucial.

US banks to report first

In the US, the world’s biggest economy, the big banks kick off the reporting Wednesday, with JPMorgan, Goldman Sachs and Wells Fargo. Bank of America and Citigroup report Thursday and Morgan Stanley reports Friday. PepsiCo is also among the first to report.

The consensus for the first quarter is earnings are supposed to be up between 22 per cent to 30 per cent, given that last year’s comparison figures came in lower-than-usual because of the pandemic.

Another positive sign is that estimates overall have been rising heading into the earnings period. Estimates typically drop ahead of a reporting period after companies give conservative outlooks.

Caution among investors

Still, some analysts fear that investors will be disappointed after the sharp run up in earnings expectations, which could dent stock prices after a months-long rally led by economically sensitive stocks.

Investors are optimistic companies will offer more guidance now after being reluctant give projections at the start of the pandemic.

“We'll probably see more companies giving outlooks,” said Tim Ghriskey, chief investment strategist at US-based Inverness Counsel. “That will give the market a lot of confidence.”

Lackluster appetite in Asia, Europe

The China CSI 300 index and Hong Kong’s Hang Seng index each fell more than 1 per cent Friday. The Stoxx Europe 600 index rose 0.1 per cent to a new record.

China data showed consumer prices climbed 0.4 per cent on the year in March, driven by fuel price increases, while factory prices climbed to a more than two-year high.

While China has enjoyed a strong rebound from the COVID-19 pandemic, some investors fear that global inflation could spread from China and force central banks to take action at some point, possibly interest rate increases. Higher rates tend to negatively affect stock prices.