We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
In the Global Week Ahead, on Friday, the Third Quarter of 2021 comes to a close.
That means Q3 earnings season approaches.
The usual leader of the S&P 500 earnings season Alcoa (AA - Free Report) reports on October 14th.
Zacks Research Director’s Six Key Points on S&P 500 Earnings—
(1) We know that the earnings picture remains strong, even though the growth pace is expected to decelerate significantly in Q3 and beyond.
What we don’t know at this stage is whether the incremental change in the earnings outlook over the coming days, as reflected in earnings estimate revisions, will be positive or negative.
(2) Estimates for 2021 Q3, whose early reports have started coming out, have not moved up as much as had been the case in comparable periods in the last few quarters.
That said, the revisions trend remains positive and could very well gain steam as the reporting cycle gets underway.
(3) Total Q3 earnings for the S&P 500 index are expected to be up +26.0% from the same period last year on +13.7% higher revenues.
This would follow the +94.9% earnings growth on +25.2% higher revenues in Q2.
(4) While Q3 earnings growth is undoubtedly on track to decelerate from the first-half’s breakneck speed, largely a reflection of base effects.
Other positive features of the earnings picture from the first half, namely broad-based revenue momentum and a favorable revision trend, are expected to remain in place.
(5) Rising cost pressures amid supply-chain disruptions and labor/material shortages will keep the spotlight on margins, which are expected to be up year-over-year as well as sequentially in Q3.
The margins trajectory over the coming periods is a key source of uncertainty in the earnings outlook, given the lack of visibility with respect to the duration of inflationary pressures.
(6) Looking at the calendar-year picture for the S&P 500 index, earnings are projected to climb +42.6% on +13.4% higher revenues in 2021 and increase +9.5% on +6.6% higher revenues in 2022.
This would follow the -13.0% earnings decline on -1.7% lower revenues in 2020.
Next are Reuters’ five world market themes, reordered for equity traders.
(1) China Looks Fragile, Property Worries Mount
The woes of debt-saddled Chinese developer Evergrande are gnawing at global markets. Unsurprising because the property sector has a bearing, direct or indirect, on a quarter of the country's huge economy.
The developer has more payment deadlines next week, but the bigger picture, the sheer size of the Chinese economy, implies the risk is high of a global growth hit -- commodity prices, emerging market currencies and even European elevator-makers have all felt the heat.
BIS data shows Chinese banks had around $1.6 trillion of cross-border liabilities as of early 2021. Given their exposure to real estate, through mortgage loans and lending to property companies, any implosion could send ripples worldwide.
(2) U.S. Macro Data Gets a Refresh
The Federal Reserve has cut its 2021 U.S. growth forecasts and projects a 5.9% rate, versus 7% previously. Upcoming data will show if the coronavirus continues to undermine the recovery.
Consumer confidence in September is on tap, after August readings came in well short of estimates, dropping to a six-month low.
Markets will get a fresh view on the housing market in the form of data on home prices and home sales, while the personal consumption expenditures (PCE) index will offer a glimpse of inflation. A Reuters poll forecasts a 3.7% annual rise in the Fed's favorite inflation gauge, a touch above 3.6% in July.
(3) Inflation Worries Are Global, Not Just in the USA. Exhibit A: Europe’s HICP
The ECB reportedly expects inflation to hit 2% by 2025. Despite analysts' skepticism, surging power prices and the seep-through elsewhere, including into inflation expectations, could mean it may not be too far off that mark.
In that light, advance readings of German and Eurozone HICP -- the harmonized index of consumer prices used by the ECB -- due Thursday and Friday respectively -- are of interest. German HICP hit a 13-year high of 3.4% in August, while consumer inflation at 3.9% was the highest since 1993.
Euro area consumer inflation expectations have doubled this year, surveys suggest, while bloc-wide HICP hit 3% in August, the highest since 2012. Power price rises have already impacted headline readings and September may show another increase.
(4) A Major German Election Happens
Sunday's German election is a close call and stakes for Europe's biggest economy couldn't be higher. After 16 years of steady, center-right leadership, Chancellor Angela Merkel will be stepping down.
Polls suggest the center-left Social Democrats (SPD) will form a coalition with the Greens and the liberal FDP, dubbed the traffic light alliance because of the parties' red, green and yellow colors.
But the number of undecided voters is at its highest in recent memory, so other outcomes are possible. The SPD's Olaf Scholz is the voters' choice to succeed Merkel, but coalition talks could take weeks, even months. Initial market reactions to the election outcome could prove premature.
(5) A Major Japanese Election Happens, Too
Japan's ruling party votes for its new leader on Wednesday, with the victor set to be the next prime minister. And it's a tight race.
Of the four candidates, vaccine minister Taro Kono is the ostensible frontrunner, while former foreign minister Fumio Kishida is the challenger. Sanae Takaichi and Seiko Noda, also former ministers, are each vying to be the first woman in the top job but are considered long shots.
Kono is favored by the Liberal Democratic Party's rank-and-file, but his reputation as a maverick makes party veterans wary. Kishida is more traditional, but is hobbled by a bland image.
Should Kono not win an outright majority, the top two will contest a run-off, where Kishida is expected to have an edge.
Investors seem to be betting on Kono. Renewable energy and office tech shares that could benefit from his policies have outperformed shares in medical services, where Kishida advocates higher spending.
Zacks #1 Rank (STRONG BUY) Stocks
Let’s take a look at an agricultural/food play, a shipping play, and a housing play.
(1) Nutrien (NTR - Free Report) : This is a $37B market cap fertilizer stock, at a share price of $64.50. I see a Zacks Value score of C, a Zacks Growth score of B and a Zacks Momentum score of A.
(2) Cosco Shipping (CICOY - Free Report) : This is a $28.5B market cap china shipping stock, at a share price of $9. I see a Zacks Value score of B, a Zacks Growth score of B and a Zacks Momentum score of A.
(3) Mohawk Industries (MHK - Free Report) : This is a $12.8B market cap home carpeting stock, at a share price of $185. I see a Zacks Value score of B, a Zacks Growth score of C and a Zacks Momentum score of C.
These are three hot industry areas, now.
Key Global Macro
Late in the week, on Friday, we get lots of Markit manufacturing PMIs. That is because Friday is the start of a new calendar month.
On Monday, U.S. Durable Goods Order, non-Defense, ex-aircraft, rose to +0.5% in the preliminary August read. This was from an upwardly revised +0.3% the previous month.
On Tuesday, U.S. Case Shiller home prices indices update comes out. The prior reading shows +19.1% y/y price expansion. That is a steep ascent.
On Wednesday, Eurozone sentiment indicators come out. Both services sentiment (18.8 vs. 16.8 prior), and industrial sentiment (13.4 vs. 13.7) should be stabilizing, or improving.
U.S. Pending Home Sales come out. The August m/m reading could be up +0.4%.
On Thursday, China’s NBS manufacturing PMI should be 50.2 in August. This bears no resemblance to the actual situation in that country, as it includes lots of state-owned firms.
The Eurozone core CPI for September comes out. This is preliminary data. The prior reading shows +3.0% y/y. That is on the high side already.
On Friday, Japan’s Jibun Bank manufacturing PMI comes out. The prior reading was 51.2. This looks the same as China’s manufacturing PMI. Does that make sense? Perhaps there is a link.
The Euro Zone Markit manufacturing PMI comes out, for September. The prior reading was 58.7.
Conclusion
Want the likely biggest source of ‘new’ news that flows out of the coming Q3 earning season?
It will be facts and CFO and CEO comments -- related to status updates -- on cost-pressures and global supply-chain issues.
Granularity is key.
Major S&P 500 companies — not sequential U.S. Federal government macro indicators — will shape a new consensus, on the forward 12M path of the PPI and the CPI.
Keep that in mind.
Happy trading and investing to all,
Warm Regards,
John Blank
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
The End of Q3: Global Week Ahead
In the Global Week Ahead, on Friday, the Third Quarter of 2021 comes to a close.
That means Q3 earnings season approaches.
The usual leader of the S&P 500 earnings season Alcoa (AA - Free Report) reports on October 14th.
Zacks Research Director’s Six Key Points on S&P 500 Earnings—
(1) We know that the earnings picture remains strong, even though the growth pace is expected to decelerate significantly in Q3 and beyond.
What we don’t know at this stage is whether the incremental change in the earnings outlook over the coming days, as reflected in earnings estimate revisions, will be positive or negative.
(2) Estimates for 2021 Q3, whose early reports have started coming out, have not moved up as much as had been the case in comparable periods in the last few quarters.
That said, the revisions trend remains positive and could very well gain steam as the reporting cycle gets underway.
(3) Total Q3 earnings for the S&P 500 index are expected to be up +26.0% from the same period last year on +13.7% higher revenues.
This would follow the +94.9% earnings growth on +25.2% higher revenues in Q2.
(4) While Q3 earnings growth is undoubtedly on track to decelerate from the first-half’s breakneck speed, largely a reflection of base effects.
Other positive features of the earnings picture from the first half, namely broad-based revenue momentum and a favorable revision trend, are expected to remain in place.
(5) Rising cost pressures amid supply-chain disruptions and labor/material shortages will keep the spotlight on margins, which are expected to be up year-over-year as well as sequentially in Q3.
The margins trajectory over the coming periods is a key source of uncertainty in the earnings outlook, given the lack of visibility with respect to the duration of inflationary pressures.
(6) Looking at the calendar-year picture for the S&P 500 index, earnings are projected to climb +42.6% on +13.4% higher revenues in 2021 and increase +9.5% on +6.6% higher revenues in 2022.
This would follow the -13.0% earnings decline on -1.7% lower revenues in 2020.
Next are Reuters’ five world market themes, reordered for equity traders.
(1) China Looks Fragile, Property Worries Mount
The woes of debt-saddled Chinese developer Evergrande are gnawing at global markets. Unsurprising because the property sector has a bearing, direct or indirect, on a quarter of the country's huge economy.
The developer has more payment deadlines next week, but the bigger picture, the sheer size of the Chinese economy, implies the risk is high of a global growth hit -- commodity prices, emerging market currencies and even European elevator-makers have all felt the heat.
BIS data shows Chinese banks had around $1.6 trillion of cross-border liabilities as of early 2021. Given their exposure to real estate, through mortgage loans and lending to property companies, any implosion could send ripples worldwide.
(2) U.S. Macro Data Gets a Refresh
The Federal Reserve has cut its 2021 U.S. growth forecasts and projects a 5.9% rate, versus 7% previously. Upcoming data will show if the coronavirus continues to undermine the recovery.
Consumer confidence in September is on tap, after August readings came in well short of estimates, dropping to a six-month low.
Markets will get a fresh view on the housing market in the form of data on home prices and home sales, while the personal consumption expenditures (PCE) index will offer a glimpse of inflation. A Reuters poll forecasts a 3.7% annual rise in the Fed's favorite inflation gauge, a touch above 3.6% in July.
(3) Inflation Worries Are Global, Not Just in the USA. Exhibit A: Europe’s HICP
The ECB reportedly expects inflation to hit 2% by 2025. Despite analysts' skepticism, surging power prices and the seep-through elsewhere, including into inflation expectations, could mean it may not be too far off that mark.
In that light, advance readings of German and Eurozone HICP -- the harmonized index of consumer prices used by the ECB -- due Thursday and Friday respectively -- are of interest. German HICP hit a 13-year high of 3.4% in August, while consumer inflation at 3.9% was the highest since 1993.
Euro area consumer inflation expectations have doubled this year, surveys suggest, while bloc-wide HICP hit 3% in August, the highest since 2012. Power price rises have already impacted headline readings and September may show another increase.
(4) A Major German Election Happens
Sunday's German election is a close call and stakes for Europe's biggest economy couldn't be higher. After 16 years of steady, center-right leadership, Chancellor Angela Merkel will be stepping down.
Polls suggest the center-left Social Democrats (SPD) will form a coalition with the Greens and the liberal FDP, dubbed the traffic light alliance because of the parties' red, green and yellow colors.
But the number of undecided voters is at its highest in recent memory, so other outcomes are possible. The SPD's Olaf Scholz is the voters' choice to succeed Merkel, but coalition talks could take weeks, even months. Initial market reactions to the election outcome could prove premature.
(5) A Major Japanese Election Happens, Too
Japan's ruling party votes for its new leader on Wednesday, with the victor set to be the next prime minister. And it's a tight race.
Of the four candidates, vaccine minister Taro Kono is the ostensible frontrunner, while former foreign minister Fumio Kishida is the challenger. Sanae Takaichi and Seiko Noda, also former ministers, are each vying to be the first woman in the top job but are considered long shots.
Kono is favored by the Liberal Democratic Party's rank-and-file, but his reputation as a maverick makes party veterans wary. Kishida is more traditional, but is hobbled by a bland image.
Should Kono not win an outright majority, the top two will contest a run-off, where Kishida is expected to have an edge.
Investors seem to be betting on Kono. Renewable energy and office tech shares that could benefit from his policies have outperformed shares in medical services, where Kishida advocates higher spending.
Zacks #1 Rank (STRONG BUY) Stocks
Let’s take a look at an agricultural/food play, a shipping play, and a housing play.
(1) Nutrien (NTR - Free Report) : This is a $37B market cap fertilizer stock, at a share price of $64.50. I see a Zacks Value score of C, a Zacks Growth score of B and a Zacks Momentum score of A.
(2) Cosco Shipping (CICOY - Free Report) : This is a $28.5B market cap china shipping stock, at a share price of $9. I see a Zacks Value score of B, a Zacks Growth score of B and a Zacks Momentum score of A.
(3) Mohawk Industries (MHK - Free Report) : This is a $12.8B market cap home carpeting stock, at a share price of $185. I see a Zacks Value score of B, a Zacks Growth score of C and a Zacks Momentum score of C.
These are three hot industry areas, now.
Key Global Macro
Late in the week, on Friday, we get lots of Markit manufacturing PMIs. That is because Friday is the start of a new calendar month.
On Monday, U.S. Durable Goods Order, non-Defense, ex-aircraft, rose to +0.5% in the preliminary August read. This was from an upwardly revised +0.3% the previous month.
On Tuesday, U.S. Case Shiller home prices indices update comes out. The prior reading shows +19.1% y/y price expansion. That is a steep ascent.
On Wednesday, Eurozone sentiment indicators come out. Both services sentiment (18.8 vs. 16.8 prior), and industrial sentiment (13.4 vs. 13.7) should be stabilizing, or improving.
U.S. Pending Home Sales come out. The August m/m reading could be up +0.4%.
On Thursday, China’s NBS manufacturing PMI should be 50.2 in August. This bears no resemblance to the actual situation in that country, as it includes lots of state-owned firms.
The Eurozone core CPI for September comes out. This is preliminary data. The prior reading shows +3.0% y/y. That is on the high side already.
On Friday, Japan’s Jibun Bank manufacturing PMI comes out. The prior reading was 51.2. This looks the same as China’s manufacturing PMI. Does that make sense? Perhaps there is a link.
The Euro Zone Markit manufacturing PMI comes out, for September. The prior reading was 58.7.
Conclusion
Want the likely biggest source of ‘new’ news that flows out of the coming Q3 earning season?
It will be facts and CFO and CEO comments -- related to status updates -- on cost-pressures and global supply-chain issues.
Granularity is key.
Major S&P 500 companies — not sequential U.S. Federal government macro indicators — will shape a new consensus, on the forward 12M path of the PPI and the CPI.
Keep that in mind.
Happy trading and investing to all,
Warm Regards,
John Blank