In the Global Week Ahead, Apple’s latest quarterly earnings report — issued after the market closes on Tuesday -- is a highlight.
Along with Apple, more than 130 companies on the S&P 500 report this week. This includes respected names like Pfizer, Time Warner, Chesapeake, Kellogg, Motorola, Kraft Heinz and Warren Buffett’s Berkshire Hathaway.
So far, second quarter (Q2) fundamentals are beating the consensus handily.
In Q2, other major multi-nationals listed in the S&P 500 helped to post substantial earnings growth at +9.1% y/y, and excellent revenue growth at +5.2% y/y. On June 30th, expected earnings growth was a much lower +6.5% y/y.
Of the 57% of S&P 500 companies that have already posted results, 73% posted better-than-expected earnings estimates. That, too, is well above the 5-yr average.
Yet, overall share index valuations are already high.
The S&P 500’s forward 12-month Price to Earnings ratio (the P/E) stands at 17.7. This forward-looking valuation is well above the 5-yr average at 15.4, and also well above the 10-yr average at 14.0.
The good earnings and revenue growth fundamentals — on the vast majority of company shares — are already priced in, effectively.
When faced with placing multiple bets on so many fully valued shares of companies, it can be bewildering — and you can over-bet.
I offer up this age-old wisdom drawn from horserace track betting. I pulled it from the “Art of Manliness” — You don’t have to bet on every race:
“For the beginner, the temptation is to bet on every single race in the program. While there is definitely one horse that will win each race, the astute horseplayer culls the entire program for the best bets and might, conceivably, only bet two or three races out of the entire card (card is the term for all the races that day).”
Those of us who work at Zacks let our stock ranking system help. It statistically picks the best winning hands to play. When faced with major stock index valuations stroking multi-year highs, it pays even more to be very, very picky on individual U.S. stocks.
Or just rotate into share markets abroad that are less pricey.
Recent Zacks #1 Rank (STRONG BUY) Additions —
I offer up three examples.
Caterpillar (CAT - Free Report) : This is a $67 billion manufacturing, construction and mining equipment maker. After the latest strong earnings report, the long-term Zacks VGM score of B says there is more good news to price in.???
Timken (TKR - Free Report) : This is a $3.5 billion market cap metal products, procurement, and fabrication company. Last Wednesday, the company beat on both earnings and revenues. Its long-term Zacks VGM score of A still keep these shares relatively more attractive than other parts of this fully-valued U.S. stock market.
Hitachi HTYIY: This is a big diversified Japanese electronics equipment maker, with $32 billion in market capitalization. Last week’s earnings report was excellent. The stock sparked. However, the long-term Zacks VGM score is A, which says there is more room to run here.
Key Global/Macro Events—
On Thursday, the Bank of England (BoE) issues its update on monetary policy.
In the last at-bat in June, the BoE struck a more hawkish tone. Three members voted in favor of a hike. Economists expect the BoE to leave policy rates unchanged at 0.25%. The news here will be how the Monetary Policy Committee handles the sorry facts on the Brexit-caused macro slowdown.
???On Friday, U.S. non-farm payrolls report should show labor market conditions here remain tight. Economists forecast +175K jobs in July, down from +222K in June. The U.S. unemployment rate should decline to 4.3%, from 4.4% in June.
The latest U.S. monthly jobs data is likely to be a feel-good story planted at the end of the week ahead. It is also likely to be already priced in, too.
On Monday, China’s manufacturing PMI comes out. The prior was 51.7. Don’t expect much here.
The Eurozone unemployment rate came out. The prior was 9.3%. The latest reading was 9.1%, the lowest since February 2009.
For regional comparisons, the unemployment rate in Germany is 3.8%. In Greece, it is 21.7%.
The flash consumer inflation rate, the HICP, came out. Core was at 1.1%, while non-core was at 1.3% y/y. July’s core reading was also +1.3% y/y.
The Chicago PMI comes out. The prior was 65.7.
On Tuesday, the smaller private company China Caixin manufacturing PMI comes out. The prior was 50.4.
The Reserve Bank of Australia (RBA) sets its monetary policy rate. The overnight rate is now 1.5%.
The final Eurozone manufacturing PMI comes out. It was 56.8 in the first reading.
The UK’s CIPS/Markit manufacturing PMI prints. The prior was 54.3, and the forecast is 54. This may be more interesting.
The U.S. ISM manufacturing index comes out. The prior was 57.8. The forecast is for 55.5.
On Wednesday, the India policy rates get set. The repo rate is currently at 6.25% and the reverse repo rate is at 6.0%.
The U.S. ADP employment survey comes out. Look for a +195K July print following on the heels of a +158K June print.
The Fed’s Mester speaks in Ohio and Williams speaks in Las Vegas.
On Thursday, the Bank of England (BoE) releases its rate decision. The base rate is at 0.25%.
Brazil’s Markit composite PMI comes out. It has been at 48.5 and the forecast is for 48. Still no strong recovery is seen there.
U.S. initial claims should be 244K.
On Friday, the all-important U.S. non-farm payroll report hits. Look for a June +222K to move to +175K in July. The unemployment rate should move from 4.4% to 4.3%.