Season of Earnings Begins

Shaun H. Ruff


Season of Earnings Begins

The second half of the year started with Friday’s jobs report, and we’re getting into the narrative this week. Our first look under the hood of the economy will be on Wednesday, then earning season will begin on Thursday. A true economic threat is emerging from Covid, which has already closed down casinos in Macau.

Elon Musk notified Twitter over the weekend that he would be terminating the acquisition. Even though this isn’t a huge surprise to us, it’s still something to watch if this deal fails to materialize. In the end, we’ll have to wait and see whether or not this deal is actually dead. Stocks are down a bit more than 5% in premarket trading.

Inflation is expected to reach 8.8% in Wednesday’s CPI report. The last report revealed a rise of 8.6% in consumer prices. As this number directly correlates with inflation, we will be keeping an eye on it. The next release is the PPI, which is predicted to increase by 10.7% on Thursday. The second quarter earnings will also be presented by JP Morgan Chase and Morgan Stanley MS -0.8%. In addition, consumer sentiment and retail sales will be reported on Friday.

The stocks of both Target TGT -0.3% and Walmart WMT +0.2% sharply declined when both companies warned about retail sales in May. Now, the next step will be to find out whether their worst fears were realized. There will be another point of focus on Friday with the consumer sentiment number. It goes without saying that consumers can reduce their spending if they are worried, which will potentially weaken the economy. The economic situation may appear to be improving if consumer sentiment is improving.

A couple points are worth making as we enter the second half of the year and earnings season begins. There is a 4.3% increase expected in earnings for the S&P 500 in the second quarter. The equity market has already experienced a significant decline in valuations since its peak. A 21x earnings multiple was on the S&P at the end of 2021. In today’s market, the earnings multiple has fallen to 16x, slightly below the historical average.

The drop in valuation might motivate retail investors to get long if they are looking to add positions. There is still an elevated volatility environment for option traders and futures options traders with the VIX trading over 26. Thus, option premiums remain high. In spite of this, we’ll keep an eye on VIX in the coming days to see if market consternation creeps higher or subsides with a trove of economic data and the start of earnings season.


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