Options market braces for swings in PepsiCo, Delta earnings

The options market is pricing in some of the largest earnings-related stock moves of the week for bellwethers PepsiCo and Delta Air Lines. According to an analysis of market data by Benzinga, traders are positioned for significant volatility in both names following their quarterly reports, suggesting uncertainty around the health of the American consumer.

Background

The reports arrive as the broader market digests a mixed tape. While the S&P 500 has consolidated near recent highs, breadth has been inconsistent, with leadership narrowing to a few mega-cap names. Against this backdrop, traders are looking to corporate earnings for direction.

The consumer staples sector, which includes food and beverage companies like PepsiCo, has lagged the broader index amid concerns that pricing power is waning. Meanwhile, airlines have faced investor skepticism over high fuel costs and the sustainability of post-pandemic travel demand. Consensus positioning has been cautious.

For PepsiCo, the key debate is whether the company can maintain its margins without seeing a significant drop in sales volume, as household budgets tighten. For Delta, investors are weighing strong booking trends against rising labor and fuel expenses. Both reports will offer a crucial read on guidance—a company’s own forecast for metrics like revenue and earnings per share (EPS), or profit per share.

This forward-looking commentary often moves a stock more than the backward-looking quarterly results.

Why it matters

These prints have a read-through for entire sectors. A strong report from PepsiCo, particularly one showing stable or growing volumes, would suggest the consumer is absorbing higher prices better than feared. This would provide a lift to the consumer staples space and challenge the prevailing narrative of a strained household.

A miss, or guidance that points to consumers trading down to cheaper private-label brands, would validate bears and pressure the multiples—a stock's price relative to its earnings—of its peers. Similarly, Delta’s results are a proxy for discretionary spending. If management delivers an upbeat outlook on capacity and fares, it signals the “experience economy” remains robust, which is a positive for airlines, hotels, and payment processors.

Anyone positioned for a sharp consumer slowdown would be on the wrong side of that trade. Conversely, a cut to its forecast citing softening demand would be a clear recessionary signal and weigh on the S&P 500.

What to watch

The market will get its answers when PepsiCo and Delta release their results and management teams host their subsequent analyst calls this week. The primary focus will be on forward guidance for the fourth quarter and full-year 2024. If executives signal confidence in consumer demand, pricing power, and their ability to manage costs, expect a relief rally in consumer-facing stocks.

If their outlook is conservative, citing macroeconomic uncertainty or weakening demand, it will likely trigger a broader risk-off move across the consumer staples and discretionary sectors.