Q2 Earnings Likely to Drive S&P 500 This Week
July 10 2022 - 1:25PM
Finscreener.org
Equity market participants will
brace for consumer inflation data and the start of Q2 earnings,
both of which are likely to impact stocks in the upcoming week.
Consumer giant PepsiCo (NASDAQ: PEP) will
report earnings on Tuesday, followed by Delta Air
Lines (NYSE:
DAL) on Wednesday and banking heavyweights such
as JPMorgan (NYSE:
JPM) and
Morgan Stanley (NYSE: MS) on
Thursday.
Several inflation reports will
also impact equities and will set the tone on how aggressive the
Federal Reserve will have to be to battle inflation.
The consumer price index report
will be published on Wednesday and might be higher than the 8.6%
reported in May. Economists expect higher energy prices to keep
inflation elevated which suggests core inflation (which excludes
energy and food prices) will be lower.
Further, the West Texas
Intermediate crude
futures stood at $122 per barrel in June but have since
declined to $105 per barrel. It will be interesting to see how
moderation in product prices will be offset by rising services
prices including rent.
The producer price index report
will be published on Thursday while the University of Michigan will
release the consumer sentiment report on Thursday. The retail sales
report which also measures consumer behavior will be released on
Friday.
The new inflation data follows a
strong employment report where the economy added 372,000 jobs in
June which was 120,000 higher than estimates. Now strategists
anticipate the Fed to increase interest rates by another 75 basis
points or 0.75% in July to keep inflation in check, as employment
data remains strong.
How will the S&P 500 perform in Q3?
Most analysts and investors are
waiting for inflation to peak as it has continued to move higher
much longer than initially expected. In an interview with CNBC,
Michael Arone, the chief investment strategist at State Street
Global Advisors stated, “I do think a risk to the markets is this
fact that inflation may not have peaked. I do still believe the
markets are at least hopeful, if not expecting, that inflation will
decelerate.”
In addition to inflation, the Q2
earnings season will also be a key catalyst for the S&P 500
in July. Corporate profits might easily cause turbulence especially
if earnings forecasts continue to move lower for the rest of 2022.
In Q2, the S&P 500 is forecast to expand earnings by 5.7%
while earnings in Q3 and Q4 are estimated to increase by 10.9% and
10.5% respectively.
Arone explains, “I think the
market is bracing for a challenging earnings quarter, so how much
it will result in volatility is unclear. I think they will lower
their guidance. Why not? It just makes it easier to beat down the
road. I do think earnings season will be a disappointment. It will
be interesting to see how the market reacts.”
In the last week, the S&P
500 gained 1.9% while the tech-heavy Nasdaq was up 4.5%. The
worst performing sectors were energy and utilities while the
consumer discretionary sector rose by 4.5%.
Treasury yields stand at 3.07%
The 10-year
Treasury note yielded 3.07% on Friday while the 2-year
Treasury note surpassed the former for the third time since
March. The yield curve is now inverted which signals an upcoming
recession. The 2-year yield stood at 3.11% on Friday.
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