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In the Global Week Ahead, the U.S. second quarter earnings season gets underway.
What has Zacks Research Director Sheraz Mian written on Q2 earnings?
This…
A big part of the unusually strong earnings growth expected in the Q2 earnings season is due to easy comparisons to last year’s Covid-hit period.
But as we have been consistently pointing out, not all of the growth is a result of easy comparisons.
- Total Q2 S&P 500 earnings are currently expected to be up +61.9% from the same period last year, on +18.2% higher revenues
- Estimates have steadily gone up in recent months, with the current +61.9% growth rate up from +50.6% at the start of the quarter on April 1st and +41.6% at the start of January
Given how strong earnings surprises turned out to be in the preceding reporting cycle (2021 Q1), the final earnings growth tally for 2021 Q1 could be as high as +80%.
Next are Reuters’ five world market themes, reordered for equity traders—
(1) Second Quarter S&P 500 Earnings Reports Start Up
The second-quarter earnings season could establish a high-water mark for the rebound U.S. corporate profits have undergone since last year's coronavirus-induced pain.
Overall, S&P 500 company earnings are estimated to have climbed a whopping +65.4% year on year, according to Refinitiv IBES, possibly the biggest percentage growth since Q4 2009, when companies were emerging from the Great Financial Crisis.
However, expectations of slowing economic growth in the second half of 2021 have recently contributed to a rally in U.S. Treasuries, taking benchmark 10-year yields to their lowest since February.
Banks highlight the week's crop of results, with Goldman Sachs (GS - Free Report) , JPMorgan (JPM - Free Report) and Bank of America (BAC - Free Report) due to report. Delta Air Lines (DAL - Free Report) , UnitedHealth Group (UNH - Free Report) and Kansas City Southern also report.
(2) Is More Heavy Mainland China Tech Sector Stock Regulation on the Way?
The Chinese tech sector is taking a drubbing as Beijing's newly-empowered Cyberspace Administration of China (CAC) cracks down further on its heavyweights.
Latest target, ride-hailing giant Didi Global DIDI, has seen its market value fall by a third in the week since it listed in New York. Others in the Hang Seng TECH index HSTECH are sharply down too, amid sweeping changes to data and fund-raising rules.
Investors are nervous: Is China opening up or forcing firms to come home? Is Beijing curtailing monopolies and controlling data or trying to reduce risk and improve standards?
There are other conundrums, too.
The economy is seen chugging along, even if Thursday's Q2 GDP data could confirm a slight loss of momentum after a bumper Q1. But a surprise announcement that Beijing could cut banks' reserve requirement ratios suggests to some not all may be well.
The People's Bank of China delivered such a cut on Friday, which will release about 1 trillion yuan ($154 billion) in long-term liquidity to underpin the post-COVID economic recovery.
(3) Where’s the Bottom on the U.S. 10-year Treasury Rate?
Bond bulls are out in force, and they take no prisoners.
Ten-year Treasury yields have tumbled to 1.3%, recording their second biggest daily drop of 2021 on Tuesday. U.K. and German yields are at their lowest in months.
Reflation, it appears, no longer holds sway. That doesn't mean investors are suddenly positioning for a slowdown. The message is perhaps more that economic growth has peaked and any inflation pick-up will prove transitory.
Concern about China's outlook and a surge in coronavirus variants adds to the caution, while the ECB has just tweaked its inflation target, another sign it will stay dovish.
Many betting on higher yields as inflation returns were forced to backtrack to cut losses -- another warning to those thinking about taking on a four-decade rally in bonds.
(4) What Happens with the OPEC+ Spat?
The public spat at OPEC+ between Saudi Arabia and the United Arab Emirates has left oil markets in limbo.
Riyadh and Abu Dhabi are at odds over a proposed deal that would have included bringing more oil to the market -- potentially cooling a rally that has seen prices hit 2 1/2-year highs. Russia is trying to mediate but new talks are yet to be scheduled.
Without a deal, the default is to leave production unchanged, possibly pushing prices higher. But others point out that a lack of cohesion across the group could lead to members ramping up production and ignoring output targets, which could push prices down.
Either way, one thing is sure: more volatility lies ahead.
(5) On Wednesday, Fed Chair Powell Talks to Congress, Other CB’s Meet
On Wednesday and Thursday, Federal Reserve Chief Jerome Powell has one of his twice yearly get-togethers with U.S. Congress and it couldn't be more timely.
His view on why bond markets seem to have suddenly given up on the reflation trade is what every global investor is currently trying to work out, so tune in.
Elsewhere the Bank of Japan is unlikely to shift away from ultra-supportive policies when it meets Friday.
Though the Bank of Canada is expected to trim its $3 billion Canadian dollar a month bond buying program to $2 billion CAD.
In emerging markets, the focus will be on Turkey on Wednesday, with searing inflation making it tough for its central bank governor to deliver the rate cuts President Tayyip Erdogan hired him for.
Top Zacks #1 Rank (STRONG BUY) Stocks
Let’s look into the commercial real estate, home builder, and consumer electronics stock market leaders this week.
(1) Brookfield Asset Management (BAM - Free Report) : This is a huge global real estate group. I see a $50 share price, making for a $79.3B market cap. There is a Zacks Value score of C, a Zacks Growth score of C and a Zacks Momentum score of C.
(2) Lennar (LEN - Free Report) : This is a major U.S. single-family homebuilder. I see a $98 share price, making for a $30.9B market cap. There is a Zacks Value score of B, a Zacks Growth score of C (surprisingly low!) and a Zacks Momentum score of A.
(3) Best Buy (BBY - Free Report) : This is a major big box consumer electronics retailer. I see a $108 share price, making for a $27B market cap. There is a Zacks Value score of B, a Zacks Growth score of D, and a Zacks Momentum score of C.
BAM stock looks better technically. Since early in Springtime, LEN & BBY share prices have been consolidating.
Is this a sign of a rotation?
Key Global Macro
Keep an eye out for the U.S. CPI data, the U.S. PPI data and the U.S. retail sales data.
That is a macro data trifecta to watch out for, and closely learn what traders think.
On Monday, we get the latest on Chinese Foreign Direct Investment. It has been up +35.4% y/y. That sounds remarkable, doesn’t it?
We also get Mainland China’s Exports for June (+31% y/y expected) and imports (+51% y/y was the prior data).
There is a U.K. Financial Stability Report coming out.
On Tuesday, the U.S. CPI comes out. +4.7% y/y is broad consensus for the entirety of the data. Ex-food & energy may be nearer to the prior +3.8% y/y reading. Is this all priced in?
It is Bastille Day in France.
On Wednesday, the U.S PPI for June may be +6.3% y/y. Again, is it priced in?
The Fed’s Beige Book comes out.
There is a Bank of Canada (BoC) press conference.
Mainland China’s Q2 GDP may have grown +19% y/y. Wow! For a big country, that is impressive. Last year’s shutdown is part of the story, though.
On Thursday, we get the latest U.S. NAHB housing index for July. It was at 81.
There is a Bank of Japan (BoJ) Monetary Policy Statement.
On Friday, U.S. retail sales for June may be up +0.2% in the control group, and +0.3% in the ex-autos group. These are both (m/m) readings.
The Euro area core CPI for June may be just +0.9% y/y.
Conclusion
For this Global Week Ahead, I close matters out, with more of Zacks Research Director Sheraz Mian’s writing, on the roll-out of the Q2 earning season.
The Q2 reporting cycle will really get going as JPMorgan and the other major banks come out with their fiscal June-quarter results on Tuesday, July 13th.
But we (and other data aggregators) count the start of this and other earnings season(s) a little differently.
From our standpoint, the Q2 reporting cycle got underway with companies reporting results for their fiscal quarters ending in May.
We have already seen such May-quarter results from 18 S&P 500 members, including Costco (COST - Free Report) , Oracle (ORCL - Free Report) and others.
We don’t have any index members results for the July 4th holiday-shortened week, but there are a dozen or so non-index members that are reported, including bellwethers like WD 40 Company (WDFC - Free Report) and Levi Strauss & Company LEVI.
We are off to a great start with the 18 S&P 500 members that have reported results already.
- Total earnings for these 18 companies are up +102.8% from the same period last year on +20.9% higher revenues, with
- 83.3% beating EPS estimates and 88.9% beating revenue estimates
It is too early to draw any conclusions from this very small sample of results.
But for what it’s worth, this is a better performance from these 18 S&P 500 index members than we have seen in the recent past.
Happy trading and investing to all!
Warm regards,
John Blank
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Ah Yes! Q2 Earnings Season: Global Week Ahead
In the Global Week Ahead, the U.S. second quarter earnings season gets underway.
What has Zacks Research Director Sheraz Mian written on Q2 earnings?
This…
A big part of the unusually strong earnings growth expected in the Q2 earnings season is due to easy comparisons to last year’s Covid-hit period.
But as we have been consistently pointing out, not all of the growth is a result of easy comparisons.
Given how strong earnings surprises turned out to be in the preceding reporting cycle (2021 Q1), the final earnings growth tally for 2021 Q1 could be as high as +80%.
Next are Reuters’ five world market themes, reordered for equity traders—
(1) Second Quarter S&P 500 Earnings Reports Start Up
The second-quarter earnings season could establish a high-water mark for the rebound U.S. corporate profits have undergone since last year's coronavirus-induced pain.
Overall, S&P 500 company earnings are estimated to have climbed a whopping +65.4% year on year, according to Refinitiv IBES, possibly the biggest percentage growth since Q4 2009, when companies were emerging from the Great Financial Crisis.
However, expectations of slowing economic growth in the second half of 2021 have recently contributed to a rally in U.S. Treasuries, taking benchmark 10-year yields to their lowest since February.
Banks highlight the week's crop of results, with Goldman Sachs (GS - Free Report) , JPMorgan (JPM - Free Report) and Bank of America (BAC - Free Report) due to report. Delta Air Lines (DAL - Free Report) , UnitedHealth Group (UNH - Free Report) and Kansas City Southern also report.
(2) Is More Heavy Mainland China Tech Sector Stock Regulation on the Way?
The Chinese tech sector is taking a drubbing as Beijing's newly-empowered Cyberspace Administration of China (CAC) cracks down further on its heavyweights.
Latest target, ride-hailing giant Didi Global DIDI, has seen its market value fall by a third in the week since it listed in New York. Others in the Hang Seng TECH index HSTECH are sharply down too, amid sweeping changes to data and fund-raising rules.
Investors are nervous: Is China opening up or forcing firms to come home? Is Beijing curtailing monopolies and controlling data or trying to reduce risk and improve standards?
There are other conundrums, too.
The economy is seen chugging along, even if Thursday's Q2 GDP data could confirm a slight loss of momentum after a bumper Q1. But a surprise announcement that Beijing could cut banks' reserve requirement ratios suggests to some not all may be well.
The People's Bank of China delivered such a cut on Friday, which will release about 1 trillion yuan ($154 billion) in long-term liquidity to underpin the post-COVID economic recovery.
(3) Where’s the Bottom on the U.S. 10-year Treasury Rate?
Bond bulls are out in force, and they take no prisoners.
Ten-year Treasury yields have tumbled to 1.3%, recording their second biggest daily drop of 2021 on Tuesday. U.K. and German yields are at their lowest in months.
Reflation, it appears, no longer holds sway. That doesn't mean investors are suddenly positioning for a slowdown. The message is perhaps more that economic growth has peaked and any inflation pick-up will prove transitory.
Concern about China's outlook and a surge in coronavirus variants adds to the caution, while the ECB has just tweaked its inflation target, another sign it will stay dovish.
Many betting on higher yields as inflation returns were forced to backtrack to cut losses -- another warning to those thinking about taking on a four-decade rally in bonds.
(4) What Happens with the OPEC+ Spat?
The public spat at OPEC+ between Saudi Arabia and the United Arab Emirates has left oil markets in limbo.
Riyadh and Abu Dhabi are at odds over a proposed deal that would have included bringing more oil to the market -- potentially cooling a rally that has seen prices hit 2 1/2-year highs. Russia is trying to mediate but new talks are yet to be scheduled.
Without a deal, the default is to leave production unchanged, possibly pushing prices higher. But others point out that a lack of cohesion across the group could lead to members ramping up production and ignoring output targets, which could push prices down.
Either way, one thing is sure: more volatility lies ahead.
(5) On Wednesday, Fed Chair Powell Talks to Congress, Other CB’s Meet
On Wednesday and Thursday, Federal Reserve Chief Jerome Powell has one of his twice yearly get-togethers with U.S. Congress and it couldn't be more timely.
His view on why bond markets seem to have suddenly given up on the reflation trade is what every global investor is currently trying to work out, so tune in.
Elsewhere the Bank of Japan is unlikely to shift away from ultra-supportive policies when it meets Friday.
Though the Bank of Canada is expected to trim its $3 billion Canadian dollar a month bond buying program to $2 billion CAD.
In emerging markets, the focus will be on Turkey on Wednesday, with searing inflation making it tough for its central bank governor to deliver the rate cuts President Tayyip Erdogan hired him for.
Top Zacks #1 Rank (STRONG BUY) Stocks
Let’s look into the commercial real estate, home builder, and consumer electronics stock market leaders this week.
(1) Brookfield Asset Management (BAM - Free Report) : This is a huge global real estate group. I see a $50 share price, making for a $79.3B market cap. There is a Zacks Value score of C, a Zacks Growth score of C and a Zacks Momentum score of C.
(2) Lennar (LEN - Free Report) : This is a major U.S. single-family homebuilder. I see a $98 share price, making for a $30.9B market cap. There is a Zacks Value score of B, a Zacks Growth score of C (surprisingly low!) and a Zacks Momentum score of A.
(3) Best Buy (BBY - Free Report) : This is a major big box consumer electronics retailer. I see a $108 share price, making for a $27B market cap. There is a Zacks Value score of B, a Zacks Growth score of D, and a Zacks Momentum score of C.
BAM stock looks better technically. Since early in Springtime, LEN & BBY share prices have been consolidating.
Is this a sign of a rotation?
Key Global Macro
Keep an eye out for the U.S. CPI data, the U.S. PPI data and the U.S. retail sales data.
That is a macro data trifecta to watch out for, and closely learn what traders think.
On Monday, we get the latest on Chinese Foreign Direct Investment. It has been up +35.4% y/y. That sounds remarkable, doesn’t it?
We also get Mainland China’s Exports for June (+31% y/y expected) and imports (+51% y/y was the prior data).
There is a U.K. Financial Stability Report coming out.
On Tuesday, the U.S. CPI comes out. +4.7% y/y is broad consensus for the entirety of the data. Ex-food & energy may be nearer to the prior +3.8% y/y reading. Is this all priced in?
It is Bastille Day in France.
On Wednesday, the U.S PPI for June may be +6.3% y/y. Again, is it priced in?
The Fed’s Beige Book comes out.
There is a Bank of Canada (BoC) press conference.
Mainland China’s Q2 GDP may have grown +19% y/y. Wow! For a big country, that is impressive. Last year’s shutdown is part of the story, though.
On Thursday, we get the latest U.S. NAHB housing index for July. It was at 81.
There is a Bank of Japan (BoJ) Monetary Policy Statement.
On Friday, U.S. retail sales for June may be up +0.2% in the control group, and +0.3% in the ex-autos group. These are both (m/m) readings.
The Euro area core CPI for June may be just +0.9% y/y.
Conclusion
For this Global Week Ahead, I close matters out, with more of Zacks Research Director Sheraz Mian’s writing, on the roll-out of the Q2 earning season.
The Q2 reporting cycle will really get going as JPMorgan and the other major banks come out with their fiscal June-quarter results on Tuesday, July 13th.
But we (and other data aggregators) count the start of this and other earnings season(s) a little differently.
From our standpoint, the Q2 reporting cycle got underway with companies reporting results for their fiscal quarters ending in May.
We have already seen such May-quarter results from 18 S&P 500 members, including Costco (COST - Free Report) , Oracle (ORCL - Free Report) and others.
We don’t have any index members results for the July 4th holiday-shortened week, but there are a dozen or so non-index members that are reported, including bellwethers like WD 40 Company (WDFC - Free Report) and Levi Strauss & Company LEVI.
We are off to a great start with the 18 S&P 500 members that have reported results already.
It is too early to draw any conclusions from this very small sample of results.
But for what it’s worth, this is a better performance from these 18 S&P 500 index members than we have seen in the recent past.
Happy trading and investing to all!
Warm regards,
John Blank