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Retail Earnings & the U.S. Consumer: Global Week Ahead
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Key Takeaways
Retail Earnings This Week Spell Consumer Strength
Are Global Food Prices About to Climb Further?
The Gold Hedge Comes Back into Play
What happens in this Global Week Ahead?
World markets are in full summer mode.
As tensions flare in the Gulf, there is no shortage of risk events for investors, including:
A health check on the mighty U.S. consumer, and
Enough focus on inflation — to bring gold back into the spotlight
Next are Reuters’ five world market themes, re-ordered for equity traders—
(1) A Wave of U.S. Corporate Retail Reports: A Tell on the U.S. Consumer
A wave of retail earnings will provide a timely check on the health of the U.S. consumer, showing whether spending remains resilient across income groups; and whether the Iran conflict is beginning to weigh on household budgets.
With a resolution stalled, Walmart (WMT - Free Report) , Home Depot (HD - Free Report) , Target (TGT - Free Report) , Lowe’s (LOW - Free Report) and Deere (DE - Free Report) could offer the clearest read yet on how higher energy prices and geopolitical uncertainty are affecting demand.
Gas is more than $4 a gallon, but inflation elsewhere shows signs of cooling.
Walmart and Target may reveal whether households are shifting spending towards essentials as fuel and transportation costs remain high.
Home Depot and Lowe’s could show whether inflation and borrowing costs are curbing home-improvement spending, while Deere may signal how rising energy and input costs are affecting farmers.
Whether executives view these pressures as manageable headwinds or a growing threat to margins and demand will be the real focus for investors.
(2) Fears of Global Food Price Inflation Rising
A super El Niño combined with higher energy costs, fertilizer shortages linked to the Middle East conflict, and new disruptions to grain shipments from the war in Ukraine are fueling fears of another bout of food inflation.
The impact is likely to be felt most acutely across Asia and Latin America, where households spend a larger share of their income on food, and policymakers remain wary of any renewed price pressures.
Economies such as India have already felt it.
The United Nations Food and Agriculture Organization has warned the world is verging on another wave of food inflation.
JP Morgan (JPM - Free Report) has estimated a strong El Niño on its own and at its peak could raise global food inflation by about 0.7%.
Markets will be watching closely to see if this is temporary or a new inflation headache, forcing central banks to rethink monetary policy.
(3) Investors Start to Buy More Gold — Again
A rising dollar and a surge in inflation expectations and bond yields were always going to knock gold.
With the price sitting near record highs at the start of the conflict, the opportunity to cash in on a parabolic rally was too good to miss. In three months, gold fell 25% and its reputation as a safe haven lay in tatters.
However, from late June's six-month low around $3,965, it has risen nearly +10%.
Inflation has not rampaged out of control and markets are assuming the Federal Reserve may not raise rates.
Investors are starting to buy gold.
After four months of outflows, gold ETFs are starting to draw in capital.
More importantly, central banks, which slowed buying sharply in the first quarter, just bought more gold between April and June than in any second quarter on record, with 289 metric tons, according to the World Gold Council.
(4) Will the Bank of Japan (BoJ) Hike Next Month? A GDP Print Shows the Pulse
The latest print of Japanese gross domestic product will offer a glimpse into how Asia's second-biggest economy is weathering the Iran war and its tolerance for a central bank interest rate hike.
GDP likely expanded an annualized 2% in the three months through June, according to the median forecast of 15 economists, marking a third straight quarterly advance.
The prolonged Middle East crisis has weighed heavily on Japan, delivering a double whammy of higher costs for imported oil and depreciation in its currency.
With mounting pressures to contain inflation and protect the yen, markets are growing more certain that the Bank of Japan will lift its policy rate by 25 basis points to 1.25% next month, following its June hike to 1%.
(5) Fresh U.K. Unemployment and Inflation Figures Come Out
After the latest reading of U.K. GDP, which beat expectations in June thanks to hot weather, World Cup football and stronger business investment, unemployment and inflation figures are up next.
Both are, of course, important, but the latter especially will be closely watched. Inflation eased to 2.6% in June, helped by a fall in energy prices after the U.S.-Iran ceasefire.
But the pause in fighting didn't last and energy prices accelerated again, which points to a potentially higher July print.
Adding to Iran-fueled inflation concerns are growing worries about higher food prices. Extreme heat in the UK and Europe is impacting food production, and several UK supermarket groups have already warned of a food price shock.
Considering the cost of living is a priority for new Prime Minister Andy Burnham, price pressures are bound to be a concern as he works out his spending and policy plans.
The Bank of England will also be watching: The chances of a rate hike later this year are falling, but not zero.
Zacks #1 Rank (STRONG BUY) Stocks
Next are three fresh Zacks #1 (STRONG BUY) large-cap stocks.
The three stocks share one thing in common: a good long-term Zacks VGM score of B.
I start with the one with the highest F12 P/E valuation. I end with the lowest.
(1) BeOne Medicines ADR (ONC - Free Report) : A $356 a share stock, market cap of $39.3B
It is found in the Zacks Medical-Drugs industry. The stock holds a Zacks Value score of D, a Zacks Growth score of A, and a Zacks Momentum score of C.
F12M P/E: 49.2.
Image Source: Zacks Investment Research
BeOne Medicines is an oncology company which involved in discovering and developing treatments to cancer patients.
BeOne Medicines, formerly known as BeiGene, is based in San Carlos, California.
(2) Celestica (CLS - Free Report) : A $348 a share stock, market cap of $39.0B
It is found in Zacks Electronic-Manufacturing Services industry. The stock holds a Zacks Value score of C, a Zacks Growth score of A, and a Zacks Momentum score of F.
F12M P/E: 31.4.
Image Source: Zacks Investment Research
Celestica is one of the largest electronics manufacturing services company in the world, serving the computer, and communications sectors.
The company provides competitive manufacturing technology and service solutions for printed circuit assembly and system assembly, as well as post-manufacturing support to many of the world's leading original equipment manufacturers.
Celestica's extensive depth and breadth of offerings supports a wide variety of customer requirements from low volume, high complexity custom products to high volume commodity products.
(3) Archer Daniels Midland (ADM - Free Report) : A $80 a share stock, market cap of $38.4B
It is found in the Zacks Agriculture Operations industry. The stock holds a Zacks Value score of B, a Zacks Growth score of D, and a Zacks Momentum score of B.
F12M P/E: 15.3.
Image Source: Zacks Investment Research
Archer Daniels Midland is one of the leading producers of food and beverage ingredients as well as goods made from various agricultural products.
The company processes oilseeds, corn, wheat, cocoa and other feedstuffs.
Moreover, it engages in the manufacturing, sale, and distribution of products like natural flavor ingredients, flavor systems, natural colors, proteins, emulsifiers, soluble fiber, polyols, hydrocolloids, natural health and nutrition products as well as other specialty food and feed ingredients.
Archer Daniels Midland also has a worldwide grain elevator and transportation network for procurement, storage, cleansing and transportation of agricultural commodities.
Key Global Macro
Focus on July U.S. housing data, out Tuesday. That key sector has been struggling.
On Monday, the Bank of Canada (BoC) CPI for July came out at +3.0%, better than the prior June broad CPI at +2.8% y/y. Core CPI came in at +1.9% (trim) and +2.0% (median), below the core CPI expectations of +2.1% y/y.
On Tuesday, U.S. Building Permits for July come out. The prior June reading was 1.374M.
U.S. Housing Starts for July also come out. The consensus for July looks for a lower 1.34M. The prior June reading was 1.427M.
On Wednesday, the latest FOMC minutes come out.
On Thursday, U.K. Retail Sales for July come out. The prior reading was +1.0% y/y.
On Friday, the HCOB Euro Area Manufacturing PMI for August comes out. The prior reading was 51.9.
Conclusion
On August 12th, Zacks Research Director Sheraz Mian shared a final Q2 EPS update.
Five key points:
(1) For the 451 S&P500 companies reporting Q2 results (representing 90.2% of total index membership)?
Aggregate earnings grew +41.6% year-over-year, on +14.7% higher revenues.
Positive Surprises were widespread.
83.4% beat EPS estimates and 76.5% topped revenue estimates.
(2) Earnings season has concluded for half of the 16 Zacks sectors, including Finance, Energy, and Basic Materials, with most remaining sectors having the majority of their results.
Retail and Tech remain the exceptions, with a significant number of results still outstanding.
(3) Aggregate figures were heavily bolstered by Micron’s (MU - Free Report) strong quarterly report, and an unrealized gain on Alphabet’s (GOOGL - Free Report) SpaceX stake.
However, the baseline growth pace still represents a notable acceleration relative to other recent periods when these growth drivers are stripped out.
(4) Excluding Micron and Alphabet, Q2 earnings for the remaining 449 reporting index members rose +21.5% (compared to +41.6% unadjusted) on +13.6% higher revenue (compared to +14.7% unadjusted), maintaining a solid growth profile.
(5) Q2 earnings growth within the Tech sector remains heavily concentrated in Nvidia (NVDA - Free Report) , Micron and Alphabet.
Stripping the contribution of these three companies? That reduces Q2 earnings growth for the remainder of the Info Tech sector to +33.2% (down from +94.9%).
That’s it for this summer trading week.
Warm Regards,
John Blank, PhD. Zacks Chief Equity Strategist and Economist
View the Zacks #1 Rank List
Image: Bigstock
Retail Earnings & the U.S. Consumer: Global Week Ahead
Key Takeaways
What happens in this Global Week Ahead?
World markets are in full summer mode.
As tensions flare in the Gulf, there is no shortage of risk events for investors, including:
Next are Reuters’ five world market themes, re-ordered for equity traders—
(1) A Wave of U.S. Corporate Retail Reports: A Tell on the U.S. Consumer
A wave of retail earnings will provide a timely check on the health of the U.S. consumer, showing whether spending remains resilient across income groups; and whether the Iran conflict is beginning to weigh on household budgets.
With a resolution stalled, Walmart (WMT - Free Report) , Home Depot (HD - Free Report) , Target (TGT - Free Report) , Lowe’s (LOW - Free Report) and Deere (DE - Free Report) could offer the clearest read yet on how higher energy prices and geopolitical uncertainty are affecting demand.
Gas is more than $4 a gallon, but inflation elsewhere shows signs of cooling.
Walmart and Target may reveal whether households are shifting spending towards essentials as fuel and transportation costs remain high.
Home Depot and Lowe’s could show whether inflation and borrowing costs are curbing home-improvement spending, while Deere may signal how rising energy and input costs are affecting farmers.
Whether executives view these pressures as manageable headwinds or a growing threat to margins and demand will be the real focus for investors.
(2) Fears of Global Food Price Inflation Rising
A super El Niño combined with higher energy costs, fertilizer shortages linked to the Middle East conflict, and new disruptions to grain shipments from the war in Ukraine are fueling fears of another bout of food inflation.
The impact is likely to be felt most acutely across Asia and Latin America, where households spend a larger share of their income on food, and policymakers remain wary of any renewed price pressures.
Economies such as India have already felt it.
The United Nations Food and Agriculture Organization has warned the world is verging on another wave of food inflation.
JP Morgan (JPM - Free Report) has estimated a strong El Niño on its own and at its peak could raise global food inflation by about 0.7%.
Markets will be watching closely to see if this is temporary or a new inflation headache, forcing central banks to rethink monetary policy.
(3) Investors Start to Buy More Gold — Again
A rising dollar and a surge in inflation expectations and bond yields were always going to knock gold.
With the price sitting near record highs at the start of the conflict, the opportunity to cash in on a parabolic rally was too good to miss. In three months, gold fell 25% and its reputation as a safe haven lay in tatters.
However, from late June's six-month low around $3,965, it has risen nearly +10%.
Inflation has not rampaged out of control and markets are assuming the Federal Reserve may not raise rates.
Investors are starting to buy gold.
After four months of outflows, gold ETFs are starting to draw in capital.
More importantly, central banks, which slowed buying sharply in the first quarter, just bought more gold between April and June than in any second quarter on record, with 289 metric tons, according to the World Gold Council.
(4) Will the Bank of Japan (BoJ) Hike Next Month? A GDP Print Shows the Pulse
The latest print of Japanese gross domestic product will offer a glimpse into how Asia's second-biggest economy is weathering the Iran war and its tolerance for a central bank interest rate hike.
GDP likely expanded an annualized 2% in the three months through June, according to the median forecast of 15 economists, marking a third straight quarterly advance.
The prolonged Middle East crisis has weighed heavily on Japan, delivering a double whammy of higher costs for imported oil and depreciation in its currency.
With mounting pressures to contain inflation and protect the yen, markets are growing more certain that the Bank of Japan will lift its policy rate by 25 basis points to 1.25% next month, following its June hike to 1%.
(5) Fresh U.K. Unemployment and Inflation Figures Come Out
After the latest reading of U.K. GDP, which beat expectations in June thanks to hot weather, World Cup football and stronger business investment, unemployment and inflation figures are up next.
Both are, of course, important, but the latter especially will be closely watched. Inflation eased to 2.6% in June, helped by a fall in energy prices after the U.S.-Iran ceasefire.
But the pause in fighting didn't last and energy prices accelerated again, which points to a potentially higher July print.
Adding to Iran-fueled inflation concerns are growing worries about higher food prices. Extreme heat in the UK and Europe is impacting food production, and several UK supermarket groups have already warned of a food price shock.
Considering the cost of living is a priority for new Prime Minister Andy Burnham, price pressures are bound to be a concern as he works out his spending and policy plans.
The Bank of England will also be watching: The chances of a rate hike later this year are falling, but not zero.
Zacks #1 Rank (STRONG BUY) Stocks
Next are three fresh Zacks #1 (STRONG BUY) large-cap stocks.
The three stocks share one thing in common: a good long-term Zacks VGM score of B.
I start with the one with the highest F12 P/E valuation. I end with the lowest.
(1) BeOne Medicines ADR (ONC - Free Report) : A $356 a share stock, market cap of $39.3B
It is found in the Zacks Medical-Drugs industry. The stock holds a Zacks Value score of D, a Zacks Growth score of A, and a Zacks Momentum score of C.
F12M P/E: 49.2.
Image Source: Zacks Investment Research
BeOne Medicines is an oncology company which involved in discovering and developing treatments to cancer patients.
BeOne Medicines, formerly known as BeiGene, is based in San Carlos, California.
(2) Celestica (CLS - Free Report) : A $348 a share stock, market cap of $39.0B
It is found in Zacks Electronic-Manufacturing Services industry. The stock holds a Zacks Value score of C, a Zacks Growth score of A, and a Zacks Momentum score of F.
F12M P/E: 31.4.
Image Source: Zacks Investment Research
Celestica is one of the largest electronics manufacturing services company in the world, serving the computer, and communications sectors.
The company provides competitive manufacturing technology and service solutions for printed circuit assembly and system assembly, as well as post-manufacturing support to many of the world's leading original equipment manufacturers.
Celestica's extensive depth and breadth of offerings supports a wide variety of customer requirements from low volume, high complexity custom products to high volume commodity products.
(3) Archer Daniels Midland (ADM - Free Report) : A $80 a share stock, market cap of $38.4B
It is found in the Zacks Agriculture Operations industry. The stock holds a Zacks Value score of B, a Zacks Growth score of D, and a Zacks Momentum score of B.
F12M P/E: 15.3.
Image Source: Zacks Investment Research
Archer Daniels Midland is one of the leading producers of food and beverage ingredients as well as goods made from various agricultural products.
The company processes oilseeds, corn, wheat, cocoa and other feedstuffs.
Moreover, it engages in the manufacturing, sale, and distribution of products like natural flavor ingredients, flavor systems, natural colors, proteins, emulsifiers, soluble fiber, polyols, hydrocolloids, natural health and nutrition products as well as other specialty food and feed ingredients.
Archer Daniels Midland also has a worldwide grain elevator and transportation network for procurement, storage, cleansing and transportation of agricultural commodities.
Key Global Macro
Focus on July U.S. housing data, out Tuesday. That key sector has been struggling.
On Monday, the Bank of Canada (BoC) CPI for July came out at +3.0%, better than the prior June broad CPI at +2.8% y/y. Core CPI came in at +1.9% (trim) and +2.0% (median), below the core CPI expectations of +2.1% y/y.
On Tuesday, U.S. Building Permits for July come out. The prior June reading was 1.374M.
U.S. Housing Starts for July also come out. The consensus for July looks for a lower 1.34M. The prior June reading was 1.427M.
On Wednesday, the latest FOMC minutes come out.
On Thursday, U.K. Retail Sales for July come out. The prior reading was +1.0% y/y.
On Friday, the HCOB Euro Area Manufacturing PMI for August comes out. The prior reading was 51.9.
Conclusion
On August 12th, Zacks Research Director Sheraz Mian shared a final Q2 EPS update.
Five key points:
(1) For the 451 S&P500 companies reporting Q2 results (representing 90.2% of total index membership)?
Aggregate earnings grew +41.6% year-over-year, on +14.7% higher revenues.
Positive Surprises were widespread.
83.4% beat EPS estimates and 76.5% topped revenue estimates.
(2) Earnings season has concluded for half of the 16 Zacks sectors, including Finance, Energy, and Basic Materials, with most remaining sectors having the majority of their results.
Retail and Tech remain the exceptions, with a significant number of results still outstanding.
(3) Aggregate figures were heavily bolstered by Micron’s (MU - Free Report) strong quarterly report, and an unrealized gain on Alphabet’s (GOOGL - Free Report) SpaceX stake.
However, the baseline growth pace still represents a notable acceleration relative to other recent periods when these growth drivers are stripped out.
(4) Excluding Micron and Alphabet, Q2 earnings for the remaining 449 reporting index members rose +21.5% (compared to +41.6% unadjusted) on +13.6% higher revenue (compared to +14.7% unadjusted), maintaining a solid growth profile.
(5) Q2 earnings growth within the Tech sector remains heavily concentrated in Nvidia (NVDA - Free Report) , Micron and Alphabet.
Stripping the contribution of these three companies? That reduces Q2 earnings growth for the remainder of the Info Tech sector to +33.2% (down from +94.9%).
That’s it for this summer trading week.
Warm Regards,
John Blank, PhD.
Zacks Chief Equity Strategist and Economist