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The Upside Down Earnings Season: Global Week Ahead
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In the Global Week Ahead, can it be about earnings fundamentals?
Let’s hope not! LOL
Strong earning reports have been BAD news for long holders of stocks in this crazy third quarter.
In short, companies that beat on their earnings consensus are falling the most this quarter. Yes: doing better is getting punished. It’s the first time we have seen that since Q2-2011.
Here’s the key set of facts distinguishing this earnings season—
Companies in the S&P 500 that reported positive earnings surprises for Q3 have averaged a -1.5% decrease in price from two days before the company reported actual results through two days after.
Over the past five years, companies that reported positive earnings surprises witnessed a +1.0% increase in price during this 4-day window.
That could mean this: big shareholding institutions are treating this reporting period as ‘a peak’ in a long business cycle — and unloading some of their long-held positions — to be careful.
We do have a contentious midterm election in a few short days, a possible impeachment in the months ahead, and a major U.S.-China trade war in play for who knows how long.
Nonetheless, marquee earnings from Apple and Facebook highlight a very busy earnings schedule in the coming week. About half of companies have reported already.
Other notable companies expected to report results include —
Akamai, Constellation Brands and KLA-Tencor on Monday
Facebook, General Electric. Mastercard, Aetna, Coca-Cola, Under Armour, Pfizer and eBay on Tuesday
General Motors, Kellogg, Yum Brands and AIG on Wednesday
Apple, Dow DuPont, Church & Dwight, Zoetis, Metlife, CBS and Starbucks on Thursday
ExxonMobil, AbbVie and Chevron on Friday
The Forward P/E valuation for the S&P 500 is down to a more reasonable 15.5.
Next, I have reproduced five big Reuters world market themes. These are likely to dominate the thinking of investors and traders alike in the coming Global Week Ahead. I re-ranked them in order of importance to U.S. stocks.
Also, on Friday, traders and investors will close out the week with the monthly U.S. jobs report.
(1) What happens to stocks?
Gulp! The savage global stock markets selloff means October could finish as the worst month for MSCI’s all-country index in at least seven years next week — with losses since January’s peaks now closing in on 15 percent.
The bear market has been extending its reach gradually around the world for months – from China to broader emerging markets to European autos and banks and almost 65 percent constituent stocks of MSCI’s all-country world index. Even the FANG+TM index of U.S. and world tech and internet stocks has joined the slump.
So what happens next? $7 trillion has been already wiped off of global stocks but there has been little hint of a bounce. Just as, importantly, the Federal Reserve and ECB show no sign of blinking in terms of tightening policy, and China stimulus has yet to bite. History suggests that markets only tend to stop panicking when central banks start panicking.
The more optimistic, though, point out that Christmas is coming and Santa rallies often turn up a month early. Halloween is on Wednesday this year, so there is plenty of time for things to get scarier, especially if Apple’s results on Thursday turn out sour.
(2) The U.S. non-farm payroll report for October hits
Next week’s U.S. non-farm payrolls report is expected to show a rebound in job creation after the unexpected slowdown in September, with headline employment growth estimated at 190,000 in a Reuters poll.
Unemployment looks set to hold near a 50-year low too, but what could really grab attention is worker pay, which has long lagged the recovery in outright U.S. employment.
Economists in the Reuters poll estimate that wage growth could finally breach the 3 percent level on an annual basis for the first time since the end of the Great Recession of 2008-2009.
Any indication that wages are gaining traction will feed expectations for higher inflation and more U.S. interest rate hikes as a result. That could lift the dollar and U.S. bond yields, as well as President Trump’s attack level on the Federal Reserve.
(3) What happens with Brexit? The Bank of England has a say this week
What happens with Brexit is still anyone’s guess, but UK finance minister Philip Hammond will have to stand up on Monday and give his best approximation of a budget.
Britain’s economy isn’t exactly roaring, so despite the promises of his boss, Prime Minister Theresa May, to end austerity, “Spreadsheet Phil” as he is known in the UK press won’t be able to splash the cash — or “show May the money” as Tom Cruise would yell it.
He will probably dangle the prospect of more spending if a smooth EU exit by March can be achieved, but the civil war raging in May and Hammond’s ruling Conservative Party also means any talk of raising taxes to plug the UK’s financing holes will be avoided for now, at least.
Bank of England Governor Mark Carney faces a similar problem on Thursday. The central bank is expected to keep interest rates on hold and say it is sticking to its plan to raise them gradually. But that is also assuming Britain gets a Brexit deal, and for both Hammond and Carney that is still a big unknown.
(4) The Bank of Japan shows us a monetary policy swing
It will be “kanwa no keizoku,” or easy policy on autopilot, when the Bank of Japan meets this week, but it will come as little surprise given its goal of 2 percent inflation is slipping away again and the raging trade wars and market meltdowns.
It last tweaked policy in July, when it added a bit of flexibility to its zero percent target on 10-year Japanese government bond yields, and this time there is chatter it might lay the groundwork to infuse some greater movement at the longer end of the bond curve which could be done by being less transparent with its monthly bond purchase plans.
Yet the yen and JGBs have been some of the main refuges in the global markets storm, and neither the BOJ nor investors want that to be disturbed. So this meeting may well be all about keeping the peace.
(5) Lots of Eurozone data this week
This week brings a heavy dump of Eurozone data.
On Tuesday there is the first reading of Q3 GDP and the main economic sentiment survey for the 19-country bloc, and Wednesday there are key inflation numbers. Together they will show just how much of an impact the trade war and stock market stresses are having on the economy.
ECB Chief Mario Draghi showed little sign of panicking this week in face of the cocktail of hazards that have been building, but if inflation misses forecasts of 2.2 percent for the headline number and 1.2 percent for the core print — which excludes volatile food and energy prices — it could give the central bank watchers a little more cause for concern.
Similarly, quarterly GDP growth is expected to come in at around a 0.4 percent, and any undershooting there probably won’t be taken too well either. That applies to the euro especially, which is already down 4 percent in the last month against the dollar.
Top Stocks--
Berkshire Hathaway (BRK.B - Free Report) : Warren Buffett’s stock price is down below $200. It was just above $220 a few weeks ago. The Value score is C now. But the Zacks Rank is #1. Companhia Brasileira de Distribuicao (CBD): This is a big retail supermarket chain in Brazil. I believe its like a 7-11 in the USA. The stock has A’s in Value and Growth. It may be time to buy here.
Methanex Corp. (MEOH - Free Report) : Chemical stocks have been hit hard by the broad selloff. This one went from $80 to $65 in a few short weeks. But the Zacks VGM scores are straight A’s now. And the Zacks Rank is #1.
Key Global Macro—
On Monday, we get the core PCE price index (consensus at +0.1% m/m), personal income (up +0.3% m/m) and personal spending (up +0.3%).
On Tuesday, the German unemployment rate comes out. It was 5.1%.
Eurozone GDP (seasonally adjusted) comes out. The y/y number is +2.1%.
We also get updates on Eurozone Business Climate, Consumer Sentiment, Economic Confidence and Industrial Sentiment.
Brazil’s unemployment rate may make it to 11.9% from 12.1%. The country has just elected a far right-wing leader. It might have something to do with the stalled economy and high unemployment rate, and the corruption of the prior left-wing leaders. And social media!
Brazil set its SELIC monetary policy rate. It should stay flat at 6.5%. Inflation is still an issue.
On Wednesday, we get the Eurozone HICP inflation rate. It should get to +1.1% y/y from +0.9%.
We get a new Eurozone unemployment rate. It has been 8.1%.
The ADP employment survey comes out. It should be 155K. Not bad, and proper to the economy growing just a bit. The Chicago PMI comes out. It has been 60.4.
On Thursday, there is the IMF’s 19th Jacques Polak Annual Research Conference.
We get China’s Caixin manufacturing PMI. It should go nowhere as usual. Look for 50.1. A break below 50 would be hugely newsworthy. They manage for 50.
India’s manufacturing PMI is at 52. We get a fresh reading. Brazil’s manufacturing PMI is at 50.9. It should get to 51.8. The Bank of England (BoE) sets it monetary policy rate, the bank rate. It is at 0.75%.
On Friday, U.S. average hourly earnings should be up +0.3%. Non-farm payroll should be up +175K. Those are solid numbers. The wage number is more important to rates.
The U.S. unemployment rate should get to 3.8%.
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The Upside Down Earnings Season: Global Week Ahead
In the Global Week Ahead, can it be about earnings fundamentals?
Let’s hope not! LOL
Strong earning reports have been BAD news for long holders of stocks in this crazy third quarter.
In short, companies that beat on their earnings consensus are falling the most this quarter. Yes: doing better is getting punished. It’s the first time we have seen that since Q2-2011.
Here’s the key set of facts distinguishing this earnings season—
Companies in the S&P 500 that reported positive earnings surprises for Q3 have averaged a -1.5% decrease in price from two days before the company reported actual results through two days after.
Over the past five years, companies that reported positive earnings surprises witnessed a +1.0% increase in price during this 4-day window.
That could mean this: big shareholding institutions are treating this reporting period as ‘a peak’ in a long business cycle — and unloading some of their long-held positions — to be careful.
We do have a contentious midterm election in a few short days, a possible impeachment in the months ahead, and a major U.S.-China trade war in play for who knows how long.
Nonetheless, marquee earnings from Apple and Facebook highlight a very busy earnings schedule in the coming week. About half of companies have reported already.
Other notable companies expected to report results include —
The Forward P/E valuation for the S&P 500 is down to a more reasonable 15.5.
Next, I have reproduced five big Reuters world market themes. These are likely to dominate the thinking of investors and traders alike in the coming Global Week Ahead. I re-ranked them in order of importance to U.S. stocks.
Also, on Friday, traders and investors will close out the week with the monthly U.S. jobs report.
(1) What happens to stocks?
Gulp! The savage global stock markets selloff means October could finish as the worst month for MSCI’s all-country index in at least seven years next week — with losses since January’s peaks now closing in on 15 percent.
The bear market has been extending its reach gradually around the world for months – from China to broader emerging markets to European autos and banks and almost 65 percent constituent stocks of MSCI’s all-country world index. Even the FANG+TM index of U.S. and world tech and internet stocks has joined the slump.
So what happens next? $7 trillion has been already wiped off of global stocks but there has been little hint of a bounce. Just as, importantly, the Federal Reserve and ECB show no sign of blinking in terms of tightening policy, and China stimulus has yet to bite. History suggests that markets only tend to stop panicking when central banks start panicking.
The more optimistic, though, point out that Christmas is coming and Santa rallies often turn up a month early. Halloween is on Wednesday this year, so there is plenty of time for things to get scarier, especially if Apple’s results on Thursday turn out sour.
(2) The U.S. non-farm payroll report for October hits
Next week’s U.S. non-farm payrolls report is expected to show a rebound in job creation after the unexpected slowdown in September, with headline employment growth estimated at 190,000 in a Reuters poll.
Unemployment looks set to hold near a 50-year low too, but what could really grab attention is worker pay, which has long lagged the recovery in outright U.S. employment.
Economists in the Reuters poll estimate that wage growth could finally breach the 3 percent level on an annual basis for the first time since the end of the Great Recession of 2008-2009.
Any indication that wages are gaining traction will feed expectations for higher inflation and more U.S. interest rate hikes as a result. That could lift the dollar and U.S. bond yields, as well as President Trump’s attack level on the Federal Reserve.
(3) What happens with Brexit? The Bank of England has a say this week
What happens with Brexit is still anyone’s guess, but UK finance minister Philip Hammond will have to stand up on Monday and give his best approximation of a budget.
Britain’s economy isn’t exactly roaring, so despite the promises of his boss, Prime Minister Theresa May, to end austerity, “Spreadsheet Phil” as he is known in the UK press won’t be able to splash the cash — or “show May the money” as Tom Cruise would yell it.
He will probably dangle the prospect of more spending if a smooth EU exit by March can be achieved, but the civil war raging in May and Hammond’s ruling Conservative Party also means any talk of raising taxes to plug the UK’s financing holes will be avoided for now, at least.
Bank of England Governor Mark Carney faces a similar problem on Thursday. The central bank is expected to keep interest rates on hold and say it is sticking to its plan to raise them gradually. But that is also assuming Britain gets a Brexit deal, and for both Hammond and Carney that is still a big unknown.
(4) The Bank of Japan shows us a monetary policy swing
It will be “kanwa no keizoku,” or easy policy on autopilot, when the Bank of Japan meets this week, but it will come as little surprise given its goal of 2 percent inflation is slipping away again and the raging trade wars and market meltdowns.
It last tweaked policy in July, when it added a bit of flexibility to its zero percent target on 10-year Japanese government bond yields, and this time there is chatter it might lay the groundwork to infuse some greater movement at the longer end of the bond curve which could be done by being less transparent with its monthly bond purchase plans.
Yet the yen and JGBs have been some of the main refuges in the global markets storm, and neither the BOJ nor investors want that to be disturbed. So this meeting may well be all about keeping the peace.
(5) Lots of Eurozone data this week
This week brings a heavy dump of Eurozone data.
On Tuesday there is the first reading of Q3 GDP and the main economic sentiment survey for the 19-country bloc, and Wednesday there are key inflation numbers. Together they will show just how much of an impact the trade war and stock market stresses are having on the economy.
ECB Chief Mario Draghi showed little sign of panicking this week in face of the cocktail of hazards that have been building, but if inflation misses forecasts of 2.2 percent for the headline number and 1.2 percent for the core print — which excludes volatile food and energy prices — it could give the central bank watchers a little more cause for concern.
Similarly, quarterly GDP growth is expected to come in at around a 0.4 percent, and any undershooting there probably won’t be taken too well either. That applies to the euro especially, which is already down 4 percent in the last month against the dollar.
Top Stocks--
Berkshire Hathaway (BRK.B - Free Report) : Warren Buffett’s stock price is down below $200. It was just above $220 a few weeks ago. The Value score is C now. But the Zacks Rank is #1.
Companhia Brasileira de Distribuicao (CBD): This is a big retail supermarket chain in Brazil. I believe its like a 7-11 in the USA. The stock has A’s in Value and Growth. It may be time to buy here.
Methanex Corp. (MEOH - Free Report) : Chemical stocks have been hit hard by the broad selloff. This one went from $80 to $65 in a few short weeks. But the Zacks VGM scores are straight A’s now. And the Zacks Rank is #1.
Key Global Macro—
On Monday, we get the core PCE price index (consensus at +0.1% m/m), personal income (up +0.3% m/m) and personal spending (up +0.3%).
On Tuesday, the German unemployment rate comes out. It was 5.1%.
Eurozone GDP (seasonally adjusted) comes out. The y/y number is +2.1%.
We also get updates on Eurozone Business Climate, Consumer Sentiment, Economic Confidence and Industrial Sentiment.
Brazil’s unemployment rate may make it to 11.9% from 12.1%. The country has just elected a far right-wing leader. It might have something to do with the stalled economy and high unemployment rate, and the corruption of the prior left-wing leaders. And social media!
Brazil set its SELIC monetary policy rate. It should stay flat at 6.5%. Inflation is still an issue.
On Wednesday, we get the Eurozone HICP inflation rate. It should get to +1.1% y/y from +0.9%.
We get a new Eurozone unemployment rate. It has been 8.1%.
The ADP employment survey comes out. It should be 155K. Not bad, and proper to the economy growing just a bit.
The Chicago PMI comes out. It has been 60.4.
On Thursday, there is the IMF’s 19th Jacques Polak Annual Research Conference.
We get China’s Caixin manufacturing PMI. It should go nowhere as usual. Look for 50.1. A break below 50 would be hugely newsworthy. They manage for 50.
India’s manufacturing PMI is at 52. We get a fresh reading.
Brazil’s manufacturing PMI is at 50.9. It should get to 51.8.
The Bank of England (BoE) sets it monetary policy rate, the bank rate. It is at 0.75%.
On Friday, U.S. average hourly earnings should be up +0.3%. Non-farm payroll should be up +175K. Those are solid numbers. The wage number is more important to rates.
The U.S. unemployment rate should get to 3.8%.