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In the Global Week Ahead, the Q2 U.S. earnings season kicks off.
Thirty-two S&P 500 names report results, including: JP Morgan, Citibank, Wells Fargo, Goldman Sachs, BofA, Morgan Stanley, BlackRock, State Street and Netflix.
“Bottoms-up” consensus expects earnings per share (EPS) to average $25.60 across Q2, down -6% from Q1, and close to a -40% drop in y/y terms.
Guidance—if provided—becomes critical. So too will survival measures such as cash on hand.
Major corporate earnings marks will update the battle over broad S&P 500 valuations:
- Price-to-trailing earnings on the S&P 500 is at 22.4.
- Price to 2020 expected earnings is higher at 25.4. This measure is clearly impacted by the COVID19-hit to profits in H1-2020. But traders are more forward looking.
- Perhaps a better measure? Compare S&P 500 share prices to expected earnings in the first full year of expected recovery. That’s 2021. Valuations by this yardstick are not excessive at 19.6 times.
If Q2 earnings growth, and more importantly forward outlooks, surprise to the upside? There could be room for multiple expansion on top of it.
Finally, there is always the Fed’s money printing exercise to factor in. And easing by 84 of the world’s central banks. That is the biggest coordinated easing event in modern history.
Next are Reuters’ five world market themes, reordered for equities—
(1) Major S&P 500 Companies Kick Off Q2 Earnings Season
America Inc. kicks off its second-quarter earnings season from Tuesday, and Refinitiv data predicts a -44.1% slump — the biggest since the 2008-9 crisis.
Coronavirus-linked shutdowns will have wiped out profits especially in the energy, consumer discretionary and industrials sectors. Back in January when the pandemic had yet to make headlines, Q2 earnings were seen growing +7.2%.
There may be silver linings. Recent equity rallies imply investors are disregarding Q2 reports and focusing on the outlook. And a “substantial earnings beat” is likely, say BofA analysts, citing economic data improvements in May and June. More importantly for markets, companies will offer “very positive forward guidance,” BofA predicts.
(2) Is This Chinese Stock Rally to Be Trusted?
A recent editorial in the official China Securities Journal calling for a healthy bull market fueled an equity buying rush, lifting stocks +14% so far in July.
But opening some newspapers elsewhere, this state-sponsored editorial begins to take on the air of distraction. Factory-gate prices are falling, and payrolls were cut for the sixth straight month, a private business survey shows.
Then there’s politics. Western pushback against Hong Kong’s new security law is gaining momentum, with Washington imposing sanctions on several Chinese officials. Canada and Australia have suspended extradition treaties and Britain opened a citizenship pathway for Hong Kongers. India has banned dozens of Chinese social media apps after border clashes.
Beijing’s response has been bluster — but investors should be wary. It may not be just the yuan and Chinese shares building up a head of steam.
(3) Where Does Gold ($1,800 per ounce) Go from Here?
Up 19% this year, gold has had a stellar run, recently cracking the $1,800 per-ounce level to scale nine-year peaks.
Several factors have driven the precious metal’s ascent, especially the safe-haven bid as the coronavirus wreaked havoc. As economies re-opened from May, retail buying helped accelerate the rally. Now focus is on gold as an inflation hedge.
With central banks and governments in full stimulus mode, inflation will be roused from its decade-long slumber, economists expect, though that’s a long-term rather than immediate possibility.
Between coronavirus risks and inflation expectations, speculators are taking no chances — positioning data indicates a market very long on gold. Prices will hit $2,000 within a year, Goldman Sachs predicts.
(4) The European Central Bank Meets on Thursday
Southern European bonds and the euro have rallied hard in the two months since France and Germany mooted a 750 billion-euro ($848 billion) post-COVID-19 recovery fund.
On July 17-18, European leaders meet to hammer out details. But differences remain on whether the fund should be based on loans or grants; if the proposal stumbles, markets will take it badly.
Even a watered-down deal would be significant as it will allow the bloc to move towards mutualizing debts. It could mark Europe’s “Hamilton moment” — a reference to the first U.S. Treasury Secretary Alexander Hamilton who in the 1790s engineered a deal allowing the federal government to assume the debts of individual states, selling Treasury bonds to fund them.
The European Central Bank, meanwhile, meets on Thursday. Decisive EU action to revive the economy would ease pressure on the bank to deliver more stimulus. It might then consider buying more supranational debt for its asset-purchase scheme, as a recovery fund would help make the EU the region’s biggest supranational issuer.
(5) OPEC Meets on Wednesday, July 15th
With the world economy seemingly past its worst and energy demand slowly recovering, OPEC and its ally Russia are expected on July 15 to whittle down the 9.7 million barrels-per-day production cut made in June to protect crude prices from collapse. Effective August, the cut will then stand at 7.7 million bpd.
The question now is to what degree the relentlessly rising U.S. coronavirus count hampers economic recovery. The news isn’t good elsewhere, either: India’s June fuel demand, for instance, fell 7.9% versus year-ago levels.
OPEC moves to release more crude onto markets will come amid renewed oversupply fears. Oil market risks are “almost certainly to the downside,” the International Energy Agency warns.
Top Zacks #1 Rank (STRONG BUY) Stocks
(1) Thermo Fisher Scientific (TMO - Free Report) : This is a $153B market cap stock with a whopping $382 share price tag. I see a Zacks C for Value, a C for Growth, and a D for Momentum. They play ball in the Medical-Instruments industry.
(2) UBS Group AG (UBS - Free Report) : This is a $42.7B market cap stocks with a $12 share price. I see a Zacks A for Value, a Zacks B for Growth, and a Zacks B for Momentum. The big banks kick off Q2 earnings season this week. Can foreign bank stocks like this get moving?
(3) Canadian Pacific Railway (CP - Free Report) : This is a $34.7B market cap stock with a $257 share price tag. I see a Zacks C for Value, a Zacks B for Growth, and a Zacks D for Momentum. Does ratifying the new USMCA make any difference here? Or is it all virus driven?
Key Global Macro
I would keep an eye on EPS reports. Those trump the macro this week.
On Monday, the big U.S. banks kick off Q2 earnings season.
On Tuesday, we get the U.K.’s May GDP data.
The European and German ZEW indices come out. Germany’s current situation sub-index looks poor at -65. But economic sentiment is the opposite, at +60.0.
On Wednesday, the Bank of Canada (BoC) has a new governor. This is his first meeting and presser. I see 0.25% is the policy rate up there. No change is expected.
China’s Q2 growth should bounce up by +10% y/y.
Australia should post its first job gains in four months in June.
On Thursday, the Bank of Japan (BoJ) will offer its latest policy decisions. Don’t expect anything here. The Policy Rate is -0.10%.
The European Central Bank (ECB) meeting will be much more important. Look for discussions on expanded stimulus. Guidance on macro will be useful too. Main refi is 0.0%, marginal lending is 0.25%, and the deposit facility is -0.5%.
The Bank of South Korea (BoK) also meets. The 7-day repo rate should stay at 0.50%.
U.S. Retail Sales for June come out. Ex-autos consensus is for +5.2%.
On Friday, U of Michigan consumer sentiment should come out. 79 is the expected number.
The latest U.S. Housing Starts data will be interesting too. I see consensus at 1.178M, with a +20.9% m/m pop in hand.
In conclusion, we have three drivers of stock valuations in the Global Week Ahead:
- The U.S. earnings season,
- A wave of global central bank decisions, and
- Further tracking of recovery evidence across major economies.
On all three counts—major company earnings, monetary policy support, and macro data—the world continues to transition away from emergency actions into recovery.
What matters most? Is any (even all) of this news already priced in.
Happy trading to all!
Regards,
John Blank
Will you retire a millionaire? One out of every six people retires a multimillionaire. Get smart tips you can do today to become one of them in a new Special Report, “7 Things You Can Do Now to Retire a Multimillionaire.” Click to get it free >>
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Time to Study Earnings: Global Week Ahead
In the Global Week Ahead, the Q2 U.S. earnings season kicks off.
Thirty-two S&P 500 names report results, including: JP Morgan, Citibank, Wells Fargo, Goldman Sachs, BofA, Morgan Stanley, BlackRock, State Street and Netflix.
“Bottoms-up” consensus expects earnings per share (EPS) to average $25.60 across Q2, down -6% from Q1, and close to a -40% drop in y/y terms.
Guidance—if provided—becomes critical. So too will survival measures such as cash on hand.
Major corporate earnings marks will update the battle over broad S&P 500 valuations:
If Q2 earnings growth, and more importantly forward outlooks, surprise to the upside? There could be room for multiple expansion on top of it.
Finally, there is always the Fed’s money printing exercise to factor in. And easing by 84 of the world’s central banks. That is the biggest coordinated easing event in modern history.
Next are Reuters’ five world market themes, reordered for equities—
(1) Major S&P 500 Companies Kick Off Q2 Earnings Season
America Inc. kicks off its second-quarter earnings season from Tuesday, and Refinitiv data predicts a -44.1% slump — the biggest since the 2008-9 crisis.
Coronavirus-linked shutdowns will have wiped out profits especially in the energy, consumer discretionary and industrials sectors. Back in January when the pandemic had yet to make headlines, Q2 earnings were seen growing +7.2%.
There may be silver linings. Recent equity rallies imply investors are disregarding Q2 reports and focusing on the outlook. And a “substantial earnings beat” is likely, say BofA analysts, citing economic data improvements in May and June. More importantly for markets, companies will offer “very positive forward guidance,” BofA predicts.
(2) Is This Chinese Stock Rally to Be Trusted?
A recent editorial in the official China Securities Journal calling for a healthy bull market fueled an equity buying rush, lifting stocks +14% so far in July.
But opening some newspapers elsewhere, this state-sponsored editorial begins to take on the air of distraction. Factory-gate prices are falling, and payrolls were cut for the sixth straight month, a private business survey shows.
Then there’s politics. Western pushback against Hong Kong’s new security law is gaining momentum, with Washington imposing sanctions on several Chinese officials. Canada and Australia have suspended extradition treaties and Britain opened a citizenship pathway for Hong Kongers. India has banned dozens of Chinese social media apps after border clashes.
Beijing’s response has been bluster — but investors should be wary. It may not be just the yuan and Chinese shares building up a head of steam.
(3) Where Does Gold ($1,800 per ounce) Go from Here?
Up 19% this year, gold has had a stellar run, recently cracking the $1,800 per-ounce level to scale nine-year peaks.
Several factors have driven the precious metal’s ascent, especially the safe-haven bid as the coronavirus wreaked havoc. As economies re-opened from May, retail buying helped accelerate the rally. Now focus is on gold as an inflation hedge.
With central banks and governments in full stimulus mode, inflation will be roused from its decade-long slumber, economists expect, though that’s a long-term rather than immediate possibility.
Between coronavirus risks and inflation expectations, speculators are taking no chances — positioning data indicates a market very long on gold. Prices will hit $2,000 within a year, Goldman Sachs predicts.
(4) The European Central Bank Meets on Thursday
Southern European bonds and the euro have rallied hard in the two months since France and Germany mooted a 750 billion-euro ($848 billion) post-COVID-19 recovery fund.
On July 17-18, European leaders meet to hammer out details. But differences remain on whether the fund should be based on loans or grants; if the proposal stumbles, markets will take it badly.
Even a watered-down deal would be significant as it will allow the bloc to move towards mutualizing debts. It could mark Europe’s “Hamilton moment” — a reference to the first U.S. Treasury Secretary Alexander Hamilton who in the 1790s engineered a deal allowing the federal government to assume the debts of individual states, selling Treasury bonds to fund them.
The European Central Bank, meanwhile, meets on Thursday. Decisive EU action to revive the economy would ease pressure on the bank to deliver more stimulus. It might then consider buying more supranational debt for its asset-purchase scheme, as a recovery fund would help make the EU the region’s biggest supranational issuer.
(5) OPEC Meets on Wednesday, July 15th
With the world economy seemingly past its worst and energy demand slowly recovering, OPEC and its ally Russia are expected on July 15 to whittle down the 9.7 million barrels-per-day production cut made in June to protect crude prices from collapse. Effective August, the cut will then stand at 7.7 million bpd.
The question now is to what degree the relentlessly rising U.S. coronavirus count hampers economic recovery. The news isn’t good elsewhere, either: India’s June fuel demand, for instance, fell 7.9% versus year-ago levels.
OPEC moves to release more crude onto markets will come amid renewed oversupply fears. Oil market risks are “almost certainly to the downside,” the International Energy Agency warns.
Top Zacks #1 Rank (STRONG BUY) Stocks
(1) Thermo Fisher Scientific (TMO - Free Report) : This is a $153B market cap stock with a whopping $382 share price tag. I see a Zacks C for Value, a C for Growth, and a D for Momentum. They play ball in the Medical-Instruments industry.
(2) UBS Group AG (UBS - Free Report) : This is a $42.7B market cap stocks with a $12 share price. I see a Zacks A for Value, a Zacks B for Growth, and a Zacks B for Momentum. The big banks kick off Q2 earnings season this week. Can foreign bank stocks like this get moving?
(3) Canadian Pacific Railway (CP - Free Report) : This is a $34.7B market cap stock with a $257 share price tag. I see a Zacks C for Value, a Zacks B for Growth, and a Zacks D for Momentum. Does ratifying the new USMCA make any difference here? Or is it all virus driven?
Key Global Macro
I would keep an eye on EPS reports. Those trump the macro this week.
On Monday, the big U.S. banks kick off Q2 earnings season.
On Tuesday, we get the U.K.’s May GDP data.
The European and German ZEW indices come out. Germany’s current situation sub-index looks poor at -65. But economic sentiment is the opposite, at +60.0.
On Wednesday, the Bank of Canada (BoC) has a new governor. This is his first meeting and presser. I see 0.25% is the policy rate up there. No change is expected.
China’s Q2 growth should bounce up by +10% y/y.
Australia should post its first job gains in four months in June.
On Thursday, the Bank of Japan (BoJ) will offer its latest policy decisions. Don’t expect anything here. The Policy Rate is -0.10%.
The European Central Bank (ECB) meeting will be much more important. Look for discussions on expanded stimulus. Guidance on macro will be useful too. Main refi is 0.0%, marginal lending is 0.25%, and the deposit facility is -0.5%.
The Bank of South Korea (BoK) also meets. The 7-day repo rate should stay at 0.50%.
U.S. Retail Sales for June come out. Ex-autos consensus is for +5.2%.
On Friday, U of Michigan consumer sentiment should come out. 79 is the expected number.
The latest U.S. Housing Starts data will be interesting too. I see consensus at 1.178M, with a +20.9% m/m pop in hand.
In conclusion, we have three drivers of stock valuations in the Global Week Ahead:
On all three counts—major company earnings, monetary policy support, and macro data—the world continues to transition away from emergency actions into recovery.
What matters most? Is any (even all) of this news already priced in.
Happy trading to all!
Regards,
John Blank
Will you retire a millionaire?
One out of every six people retires a multimillionaire. Get smart tips you can do today to become one of them in a new Special Report, “7 Things You Can Do Now to Retire a Multimillionaire.”
Click to get it free >>