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In the Global Week Ahead, the U.S. Q2 earnings season heats up.
Where does the Q2 earnings season stand, according to Zacks Research Director Sheraz Mian?
“We are off to an impressive start to the Q2 earnings season, with strong momentum on the revenue side.
“For the 30 S&P 500 members that reported Q2 results already, total earnings are up +244.3% on +14.2% higher revenues. 90% beat on both EPS and revenue estimates.
“While the outsized earnings growth pace at this early stage is mostly due to easy comparisons, primarily in the Finance sector, the performance on the revenue front (growth rate as well as beats percentage) is tracking above what we have been seeing in other recent periods.
“For the Finance sector, we have Q2 results from 28.7% of the sector’s market cap in the S&P500 index. Total earnings for these Finance companies are up +322.5% from the same period last year on +0.8% higher revenues. All companies beat EPS estimates and 87.5% beat revenue estimates.
“Easy comps and reserve releases drove the outsized earnings growth for the Finance sector.
“Excluding the unusually high Finance sector earnings growth, total Q2 earnings growth for the remainder of the index members that have reported results would be up +141.3% on +23.1% higher revenues.
“Looking at Q2 as a whole, combining the actual results for the 30 index members that have reported with estimates for the still-to-come companies, total S&P 500 earnings are expected to be up +67.7% from the same period last year on +19.1% higher revenues.
“Growth rates are steadily going up as companies report better-than-expected results.”
I would note this:
A +0.8% higher y/y revenue growth rate — after the major banks reported inside the Finance sector — speaks to a lack of interest in getting fresh loans from the U.S. banking system.
The U.S. consumer is flush with cash.
In the Global Week Ahead, earnings reports move away from the major banks, into more interesting cyclical industry niches.
Next are Reuters’ five world market themes, reordered for equity traders.
(1) The First FAANG Stock Report Is Netflix
The second-quarter U.S. earnings season kicked off with stronger-than-expected numbers from banks, now it's the turn of the tech and consumer giants, including streaming heavyweight Netflix (NFLX - Free Report) .
A darling of last year's stay-at-home trade, Netflix shares are up just 2% this year as investors have shifted to stocks which benefit as the economy reopens. Lower production of TV shows and movies during COVID-19 have dented subscriber growth.
Signs that U.S. economic growth has peaked have nevertheless been boosting the tech stocks that led markets for much of the past decade, so Netflix shares too have rallied of late.
The coming days also see quarterly results from the likes of Johnson & Johnson (JNJ - Free Report) , Coca-Cola (KO - Free Report) , Twitter and Intel (INTC - Free Report) .
(2) Are European Earnings Also Peaking?
Europe's results season is starting in earnest, meanwhile, and corporate earnings are expected to have more than doubled in Q2.
Profits of the 600 biggest listed European companies are seen surging +110% between April and June, according to Refinitiv I/B/E/S data.
Yet investors fear this is as good as it will get, and that volatility could follow once peak momentum is hit. Earnings growth rates of roughly +34% and +28% are expected for the last two quarters of 2021.
There is also the COVID-19 upsurge to contend with.
Bourses in Europe, as on Wall Street, are near record highs — but any risk of renewed lockdowns could easily knock them off that perch.
(3) Mainland China Cutting Benchmark Loan Prime Rate (LPR)
Many developed economies are pondering tapering emergency stimulus, but China has just added more money to its banking system, and there's an outside chance the benchmark loan prime rate (LPR) set by Chinese banks could be lowered as early as Tuesday.
The dual-track economy is seeing supply-side headwinds, growth and exports are peaking, while consumer spending flags. An uncertain regulatory environment for big firms, and standoffs with the United States, are weighing on investor sentiment.
After the recent cut to banks' reserve requirements and data showing the economy lost some steam in the second quarter, markets expect a bit of monetary easing even as fiscal policy stays tight.
(4) A European Central Bank (ECB) Meeting Ends on Thursday
Two weeks after unveiling its closely anticipated strategy review, the ECB will face questions at its Thursday meeting on what its new 2% inflation target might mean for policy.
If the ECB is serious about boosting inflation to 2% (versus close to but below 2% before), surely hefty bond buying will continue for some time? Doves are already arguing that to remain credible, the ECB needs to highlight its room for maneuver.
The hawks, though, are already pressing for tapering stimulus as the economy rebounds. Perhaps concern about a resurgent coronavirus hurting growth will allow ECB chief Christine Lagarde to find common ground at Thursday's meeting.
A quiet summer may be around the corner for most, not the ECB.
(5) July 19 “Freedom Day” in the U.K.
The British media dubs it "Freedom Day;” Germany describes it as a "highly risky experiment.”
So, who's right about July 19, the day Britain drops its COVID-19-linked activity curbs and mandatory mask-wearing?
Britain's blistering vaccine campaign had made the pound one of this year's best performing G10 currencies, lifted shares in UK hospitality and retail firms and spurred hopes of a swift economic rebound.
But an upsurge in the Delta variant and forecasts for Britain's COVID caseload to reach 100,000 a day by the end of August are stirring unease. Bonds are benefiting from a rush to safety while European travel shares are down 8% in the past month.
Friday's July Purchasing Managers' Index releases may reflect the impact of rising infections on activity. With the likes of Israel and Holland backtracking on reopening plans and Germany retaining curbs until vaccinations rise, just how long Britons enjoy their freedom from lockdown remains to be seen.
Top Zacks #1 Rank (STRONG BUY) Stocks
Let’s look into the 3 biggest retail names with a Zacks #1 Rank this week.
(1) Walmart (WMT - Free Report) : The giant discount store retailer is a $141 stock with a $397B market cap. I see a Zacks Value score of C, a Zacks Growth score of B and a Zacks Momentum score of F.
(2) Nike (NKE - Free Report) : The shoe and apparel giant is a $160 stock with a $255B market cap. I see a Zacks Value score of F, a Zacks Growth score of B and a Zacks Momentum score of C.
(3) Target (TGT - Free Report) : This discount retailer is a $252 stock with a $125B market cap. I see a Zacks Value score of C, a Zacks Growth score of B, and a Zacks Momentum score of C.
One key shared takeaway? All three have a strong growth rating: the Zacks Growth score of B.
The shared Zacks #1 Rank alludes to even more upgrades to earnings and revenue growth in the months ahead.
The U.S. consumer is alive and well.
Key Global Macro
The ECB monetary policy meeting on Thursday is the main event.
On Monday, China’s 5-year Loan Prime Rate should stay at 4.65% and the 1-year LPR should stay at 3.85%. These are the monetary policy rates of note in Mainland China.
The U.S. NAHB home index for June should be a strong 80, after printing 81 in the prior month.
On Tuesday, U.S. housing starts will remain strong at 1.59M; building permits will be 1.7M. Those are both strong prints.
On Wednesday, Canada’s new housing price index should be up +11.3% y/y. They have a housing price bubble going on up there.
On Thursday, the ECB should keep it rates at 0.0% and the deposit facility rate at -0.5%.
U.S. weekly jobless claims should fall to 359K after printing 382K last week.
On Friday, the Euro area’s service PMI should be 59.5 and the Euro area manufacturing PMI should be 62.5. Will the ECB note this? Unlikely.
The U.S. Markit services PMI should be 64.1 and the U.S. manufacturing PMI should be 61.8. Realize that these prints are higher than the Euro area. 60 marks are quite strong.
Conclusion
I counted 104 earnings reports in the Zacks.com system last week.
This week? 30 + 70 + 71 + 135 + 32 = 338
In words, the middle three days in the Global Week Ahead will provide prime earnings reporting action.
Keep this in mind. The indices are trading at record highs. Likely, outsized EPS growth is already priced in.
So-called company earnings ‘beats’ are too predictable, and widespread, to help lift most individual share prices.
Happy trading and investing!
John Blank
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A Big Week for Earnings: Global Week Ahead
In the Global Week Ahead, the U.S. Q2 earnings season heats up.
Where does the Q2 earnings season stand, according to Zacks Research Director Sheraz Mian?
“We are off to an impressive start to the Q2 earnings season, with strong momentum on the revenue side.
“For the 30 S&P 500 members that reported Q2 results already, total earnings are up +244.3% on +14.2% higher revenues. 90% beat on both EPS and revenue estimates.
“While the outsized earnings growth pace at this early stage is mostly due to easy comparisons, primarily in the Finance sector, the performance on the revenue front (growth rate as well as beats percentage) is tracking above what we have been seeing in other recent periods.
“For the Finance sector, we have Q2 results from 28.7% of the sector’s market cap in the S&P500 index. Total earnings for these Finance companies are up +322.5% from the same period last year on +0.8% higher revenues. All companies beat EPS estimates and 87.5% beat revenue estimates.
“Easy comps and reserve releases drove the outsized earnings growth for the Finance sector.
“Excluding the unusually high Finance sector earnings growth, total Q2 earnings growth for the remainder of the index members that have reported results would be up +141.3% on +23.1% higher revenues.
“Looking at Q2 as a whole, combining the actual results for the 30 index members that have reported with estimates for the still-to-come companies, total S&P 500 earnings are expected to be up +67.7% from the same period last year on +19.1% higher revenues.
“Growth rates are steadily going up as companies report better-than-expected results.”
I would note this:
A +0.8% higher y/y revenue growth rate — after the major banks reported inside the Finance sector — speaks to a lack of interest in getting fresh loans from the U.S. banking system.
The U.S. consumer is flush with cash.
In the Global Week Ahead, earnings reports move away from the major banks, into more interesting cyclical industry niches.
Next are Reuters’ five world market themes, reordered for equity traders.
(1) The First FAANG Stock Report Is Netflix
The second-quarter U.S. earnings season kicked off with stronger-than-expected numbers from banks, now it's the turn of the tech and consumer giants, including streaming heavyweight Netflix (NFLX - Free Report) .
A darling of last year's stay-at-home trade, Netflix shares are up just 2% this year as investors have shifted to stocks which benefit as the economy reopens. Lower production of TV shows and movies during COVID-19 have dented subscriber growth.
Signs that U.S. economic growth has peaked have nevertheless been boosting the tech stocks that led markets for much of the past decade, so Netflix shares too have rallied of late.
The coming days also see quarterly results from the likes of Johnson & Johnson (JNJ - Free Report) , Coca-Cola (KO - Free Report) , Twitter and Intel (INTC - Free Report) .
(2) Are European Earnings Also Peaking?
Europe's results season is starting in earnest, meanwhile, and corporate earnings are expected to have more than doubled in Q2.
Profits of the 600 biggest listed European companies are seen surging +110% between April and June, according to Refinitiv I/B/E/S data.
Yet investors fear this is as good as it will get, and that volatility could follow once peak momentum is hit. Earnings growth rates of roughly +34% and +28% are expected for the last two quarters of 2021.
There is also the COVID-19 upsurge to contend with.
Bourses in Europe, as on Wall Street, are near record highs — but any risk of renewed lockdowns could easily knock them off that perch.
(3) Mainland China Cutting Benchmark Loan Prime Rate (LPR)
Many developed economies are pondering tapering emergency stimulus, but China has just added more money to its banking system, and there's an outside chance the benchmark loan prime rate (LPR) set by Chinese banks could be lowered as early as Tuesday.
The dual-track economy is seeing supply-side headwinds, growth and exports are peaking, while consumer spending flags. An uncertain regulatory environment for big firms, and standoffs with the United States, are weighing on investor sentiment.
After the recent cut to banks' reserve requirements and data showing the economy lost some steam in the second quarter, markets expect a bit of monetary easing even as fiscal policy stays tight.
(4) A European Central Bank (ECB) Meeting Ends on Thursday
Two weeks after unveiling its closely anticipated strategy review, the ECB will face questions at its Thursday meeting on what its new 2% inflation target might mean for policy.
If the ECB is serious about boosting inflation to 2% (versus close to but below 2% before), surely hefty bond buying will continue for some time? Doves are already arguing that to remain credible, the ECB needs to highlight its room for maneuver.
The hawks, though, are already pressing for tapering stimulus as the economy rebounds. Perhaps concern about a resurgent coronavirus hurting growth will allow ECB chief Christine Lagarde to find common ground at Thursday's meeting.
A quiet summer may be around the corner for most, not the ECB.
(5) July 19 “Freedom Day” in the U.K.
The British media dubs it "Freedom Day;” Germany describes it as a "highly risky experiment.”
So, who's right about July 19, the day Britain drops its COVID-19-linked activity curbs and mandatory mask-wearing?
Britain's blistering vaccine campaign had made the pound one of this year's best performing G10 currencies, lifted shares in UK hospitality and retail firms and spurred hopes of a swift economic rebound.
But an upsurge in the Delta variant and forecasts for Britain's COVID caseload to reach 100,000 a day by the end of August are stirring unease. Bonds are benefiting from a rush to safety while European travel shares are down 8% in the past month.
Friday's July Purchasing Managers' Index releases may reflect the impact of rising infections on activity. With the likes of Israel and Holland backtracking on reopening plans and Germany retaining curbs until vaccinations rise, just how long Britons enjoy their freedom from lockdown remains to be seen.
Top Zacks #1 Rank (STRONG BUY) Stocks
Let’s look into the 3 biggest retail names with a Zacks #1 Rank this week.
(1) Walmart (WMT - Free Report) : The giant discount store retailer is a $141 stock with a $397B market cap. I see a Zacks Value score of C, a Zacks Growth score of B and a Zacks Momentum score of F.
(2) Nike (NKE - Free Report) : The shoe and apparel giant is a $160 stock with a $255B market cap. I see a Zacks Value score of F, a Zacks Growth score of B and a Zacks Momentum score of C.
(3) Target (TGT - Free Report) : This discount retailer is a $252 stock with a $125B market cap. I see a Zacks Value score of C, a Zacks Growth score of B, and a Zacks Momentum score of C.
One key shared takeaway? All three have a strong growth rating: the Zacks Growth score of B.
The shared Zacks #1 Rank alludes to even more upgrades to earnings and revenue growth in the months ahead.
The U.S. consumer is alive and well.
Key Global Macro
The ECB monetary policy meeting on Thursday is the main event.
On Monday, China’s 5-year Loan Prime Rate should stay at 4.65% and the 1-year LPR should stay at 3.85%. These are the monetary policy rates of note in Mainland China.
The U.S. NAHB home index for June should be a strong 80, after printing 81 in the prior month.
On Tuesday, U.S. housing starts will remain strong at 1.59M; building permits will be 1.7M. Those are both strong prints.
On Wednesday, Canada’s new housing price index should be up +11.3% y/y. They have a housing price bubble going on up there.
On Thursday, the ECB should keep it rates at 0.0% and the deposit facility rate at -0.5%.
U.S. weekly jobless claims should fall to 359K after printing 382K last week.
On Friday, the Euro area’s service PMI should be 59.5 and the Euro area manufacturing PMI should be 62.5. Will the ECB note this? Unlikely.
The U.S. Markit services PMI should be 64.1 and the U.S. manufacturing PMI should be 61.8. Realize that these prints are higher than the Euro area. 60 marks are quite strong.
Conclusion
I counted 104 earnings reports in the Zacks.com system last week.
This week? 30 + 70 + 71 + 135 + 32 = 338
In words, the middle three days in the Global Week Ahead will provide prime earnings reporting action.
Keep this in mind. The indices are trading at record highs. Likely, outsized EPS growth is already priced in.
So-called company earnings ‘beats’ are too predictable, and widespread, to help lift most individual share prices.
Happy trading and investing!
John Blank