Live Markets: Earnings season gallops down final stretch, retailers at the gate
12/08/2022 18:41
* Main U.S. stock indexes extend gains: Nasdaq up ~1.5%
* All major S&P 500 sectors green: tech leads
* Dollar, gold, bitcoin up; crude slides >2%
* U.S. 10-Year Treasury yield falls to ~2.85%
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EARNINGS SEASON GALLOPS DOWN FINAL STRETCH, RETAILERS AT THE
GATE (1341 EDT/1741 GMT)
With second-quarter earnings season nearly a wrap, investors
are heaving a collective sigh of relief.
About 91% of the companies in the S&P 500 have had their
moment in the spotlight, and of those, 78% beat consensus
expectations, according to I/B/E/S data from Refinitiv.
Analysts now believe that, on aggregate, the S&P 500 enjoyed
year-over-year earnings growth of 9.7% during the April to June
period, significantly stronger than the 5.6% predicted at
quarter-end, per Refinitiv.
While more than a few companies provided dour outlooks amid
signs of softening consumer demand, those sentiments were
largely baked-in to expectations.
On a sector level, energy companies .SPNY clearly led the
winners, posting nearly 300% annual EPS surge on the strength of
soaring crude prices CLc1 , while industrials .SPLCRI and
materials .SPLRCM placed and showed at 32.0% and 17.4%,
respectively.
Financials .SPSY , weighed by dealmaking and investment
banking slowdowns and increased loss provisions, were the
biggest losers, showing a 19.1% year-over-year earnings decline.
Consumer discretionary .SPLRCD and communication services
.SPLRCL also joined the losers' club, notching annual
respective declines of 12.8% and 11.9%.
And the fat lady isn't singing yet, she's merely warming up.
Next week a host of heavy-hitting retailers including Home
Depot HD.N and rival Lowe's LOW.N , along with big box
retailers Walmart WMT.N and Target TGT.N will take their
turn at bat during a week in which the Commerce Department
releases its closely watched retail sales data for July.
Looking ahead to third quarter results, of the 73 companies
to have issued pre-announcements, 31 have been positive versus
36 negative, resulting in a negative/positive ratio of 1.2, far
more pessimistic than the year-ago quarter but not as dire as
Q2.
Refinitiv currently shows a consensus estimate of 5.8%
annual earnings growth for the July-September quarter, a
significant drop from the 11.1% Q3 earnings growth predicted on
July 1.
The table below, courtesy of Refinitiv, shows how third
quarter earnings estimates have evolved since October 1, 2021
(click to enlarge):
(Stephen Culp)
*****
BULLS AND BEARS HIT LEVELS NOT SEEN SINCE MARCH - AAII (1215
EDT/1615 GMT)
Individual investor optimism and pessimism over the
short-term direction of the U.S. stock market both hit levels
not seen since March in the latest American Association of
Individual Investors Sentiment Survey (AAII). With this,
"neutral" sentiment edged up.
AAII reported that bullish sentiment, or expectations that
stock prices will rise over the next six months, rose 1.6
percentage points to 32.2%. Optimism was last higher on March
24, 2022 (32.8%). Despite recent increases, bullish sentiment
remains below its historical average of 38.0% for the 38th
consecutive week.
Bearish sentiment, or expectations that stock prices will
fall over the next six months, dipped 2.2 percentage points to
36.7%. Pessimism was last lower on March 31, 2022 (27.5%).
Bearish sentiment is above its historical average of 30.5% for
the 37th time out of the past 38 weeks.
Neutral sentiment, or expectations that stock prices will
stay essentially unchanged over the next six months, added 0.6
percentage points to 31.2%. Neutral sentiment is below its
historical average of 31.5% for the 14th time in 16 weeks.
With these changes, the bull-bear spread narrowed to -4.5%
from -8.3% last week urn:newsml:reuters.com:*:nL1N2ZH1OV:
AAII said that "both bullish and bearish sentiment as well
as the bull-bear spread are currently within their typical
ranges."
(Terence Gabriel)
*****
TGIF DATA: SUNNIER CONSUMER SENTIMENT, COOLER IMPORT PRICES
(1104 EDT/1504 GMT)
Data released on Friday stuck to the script written by
upbeat indicators throughout the week, providing signs of waning
inflation and economic resiliency, renewing hopes that a soft
landing can still be maneuvered by the Federal Reserve.
The mood of the American consumer has brightened this month.
The University of Michigan's initial take on August consumer
sentiment USUMSP=ECI gained 3.6 points to deliver a
rosier-than-expected reading of 55.1.
A jump in near-term expectations drove the gain, bounding
7.6 to 54.9, offsetting a 2.6 point drop in the "current
conditions" component.
"All components of the expectations index improved this
month, particularly among low and middle income consumers for
whom inflation is particularly salient," writes Joanne Hsu,
director of UMich's Surveys of Consumers. "Still, the share of
consumers blaming inflation for eroding their living standards
remained near 48%."
The graphic below compares current situation index with
six-month expectations:
Of course what consumers say and what they do are two
different things, and market participants will get a glimpse of
the latter in next week's Retail Sales report, which is expected
to decelerate to a nominal monthly gain of 0.2% for July, a 0.8
percentage-point deceleration.
Despite the uptick, the consumer outlook remains below the
level it plunged to in the immediate aftermath of pandemic
shutdowns. Even so, the saving rate - often seen as a barometer
of consumer anxiety - has dropped while outstanding credit card
balances have blown past pre-COVID levels.
This suggests the consumer, who contributes about 70% of
U.S. GDP, is burning through cash and whipping out their plastic
in order to cope with decades-hot inflation:
Inflation remains bugaboo number one. "The share of
consumers blaming inflation for eroding their living standards
remained near 48%," Hsu adds.
Inflation expectations were a mixed bag, edging down in the
near term to 5.0% from 5.2%, but longer-term expectations edging
up 0.1 percentage point to an even 3%.
This chart shows were consumers expect inflation to be one
and five years down the road:
Speaking of inflation - and when are we not? - a report from
the Labor Department showed the price of goods imported to the
United States USIMP=ECI contracted more than expected in July,
dropping 1.4% from June. urn:newsml:reuters.com:*:nL1N2ZO0UD
Compared with last year, import prices decelerated by an
impressive 1.9 percentage points to a still-scorching 8.8%.
Line-by-line, the largest declines came courtesy of
petroleum and industrial supplies, which plunged by 6.8% and
4.7%, respectively.
Combined with a sharper than anticipated 3.3% drop in export
prices, the report suggests the combined cooldown of world
economies and right-sizing of the supply chain could be
returning the demand/supply imbalance to something resembling
equanimity.
"With a synchronized slowdown in global growth factoring
into lower oil prices, we expect import price inflation to
remain on a gradual downtrend through the end of the year,
barring any unforeseen supply shocks," says Mahir Rasheed, U.S.
economist at Oxford Economics. "Rising interest rates and a more
modest growth path for the economy will also support slower
growth in import prices, especially as domestic demand eases and
falls into a healthier balance with supply."
Investors were headed into the weekend in a buying mood.
All three major U.S. stock indexes are on track for daily
and weekly gains, with the S&P and the Nasdaq poised to notch
their longest weekly winning streaks since October.
(Stephen Culp)
*****
WALL STREET GAINS ON SIGNS OF COOLER DAYS AHEAD (0950
EDT/1350 GMT)
Wall Street opened higher on Friday as fresh signs that the
inflation heatwave is starting to cool had market participants
heading into the late summer weekend in a buying mood.
The S&P and the Nasdaq are charting a course for their
fourth consecutive weekly gains, their longest winning streaks
since October.
The Labor Department released three sets of indicators this
week, all of which appeared to forecast cooler inflation days
ahead. CPI and PPI were followed on Friday with import prices,
which contracted by a consensus-beating 1.4% from July and
decelerated to 8.8% year-over-year. urn:newsml:reuters.com:*:nL1N2ZO0UD
The market has now set a 63.5% likelihood of a 50 basis
point interest rate hike from the Fed come September, an easier
pill for stocks to swallow than the third straight 75 bp
increase expected prior to this week's data, according to CME
Fed funds futures.
The U.S. House of Representatives is expected to send the
$430 billion Inflation Reduction Act to the White House to be
signed into law by President Biden. The bill is dedicated to
fighting climate change, lower prescription drug costs and
closing corporate tax loopholes. urn:newsml:reuters.com:*:nL1N2ZN1GK
Pfizer PFE.N was providing a solid lift to the S&P 500
after announcing encouraging results from its phase 3 study of
its 20-Valent Pneumococcal Conjugate Vaccine in infants. The
drugmaker's shares are last up 2.1%
Aside from the University of Michigan's advance take on
August consumer sentiment due at the top of the hour, very few
market market-moving catalysts stand between investors and the
weekend.
Here's your opening snapshot:
(Stephen Culp)
*****
WHO LET THE DROUGHT OUT? (0909 EDT/1309 GMT)
An end to Russian gas exports to Europe might push euro zone
inflation up to 6% next year, and spark a contraction in euro
zone GDP of 1%-2% in 2023, Capital Economics believes.
With the disruption of Russian energy supplies, extreme
weather conditions, falling water levels on the river Rhine in
Germany, a drought in parts of England, Norway warning it may
limit exports due to low water levels in reservoirs... Europe's
energy markets have seen better days.
"The heatwave is coming on top of a long period of dry
weather across much of Europe that has seen river flows fall to
historic lows... The war in Ukraine has already created
extraordinary stress in energy markets and now the drought is
threatening the ability of Germany to use alternatives to
Russian gas," said Steve Clayton, fund manager at Hargreaves
Landsdown.
Additionally, recent economic data has raised alarm bells
about the euro zone economy. "There's little evidence that
shortages of components or labour are easing, and it could take
a while before underlying price pressures in the euro-zone
fade," says Andrew Kenningham, chief Europe economist at Capital
Economics.
Below is a chart from Capital Economics suggesting that
“reopening inflation” is still taking place.
"The increase in furnishings and household equipment
inflation shows that price pressures are broad-based,"
Kenningham writes.
But the one silver lining is that the energy crisis should
ease by Q2 next year, Kenningham says, because demand for gas
falls as the summer approaches. "By the following winter
2023-2024, Europe should have increased its capacity to process
and transport LNG."
"We see little reason to expect a significant revision to
the preliminary flash estimate that euro zone GDP grew by 0.7%
quarter-over-quarter in Q1."
Next week will be quiet on the data front, with only the
second estimate of Q2 GDP and employment data, plus final HICP
numbers to look forward to.
(Anisha Sircar)
*****
S&P 500 INDEX: HALF THE FALL IN A THIRD OF THE TIME (0900
EDT/1300 GMT)
The S&P 500 index .SPX continues to battle a number of
significant chart hurdles in the form of congestion and
retracement levels - click here: urn:newsml:reuters.com:*:nL1N2ZG0RF
From its June 17 intraday low, the SPX rallied as much as
17% over 37 trading days into Thursday's 4,257.91 high. With
this push, the benchmark index flirted with the 50% retracement
of its January-to-June, 114-trading day, bear-market slide at
4,227.75:
Thus, the SPX has now retraced as much as 52.6% of its
entire 2022 collapse, in about a third of the time it took for
that decline to play out.
The SPX failed to hold its gains on Thursday. The index
reversed to close slightly lower at 4,207.27. It therefore ended
back below the 50% level, but just slightly above the 23.6%
Fibonacci retracement of the entire March 2020-January 2022
advance at 4,198.70.
CME S&P 500 e-mini futures EScv1 are gaining in premarket
trade, but traders will be watching to see in what direction the
SPX breaks on a closing basis out of the 4,198.70-4,227.75 zone
to potentially signal the next short-term thrust.
On the upside, the late-April high at 4,308.45, the
descending 200-day moving average (DMA), which ended Thursday at
4,330, and the 61.8% Fibonacci retracement of the 2022 bear at
4,367.19 would be the next significant resistance zone.
On the downside, Wednesday's gap requires a fall to 4,137.30
for a fill, and the 100-DMA ended Thursday at 4,109. A break
below the August 2 low (4,079.81) can suggest downside pressure
will intensify again. urn:newsml:reuters.com:*:nL1N2ZL0JZ
(Terence Gabriel)
*****
FOR FRIDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EDT/1300 GMT
- CLICK HERE: urn:newsml:reuters.com:*:nL8N2ZO3NN
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
German CPI Capital Economics https://tmsnrt.rs/3zOjK0B
SPX08122022 https://tmsnrt.rs/3zUvKxq
Opening snapshot https://tmsnrt.rs/3BWd1V0
UMich https://tmsnrt.rs/3dnYveo
Consumer expectations savings and credit https://tmsnrt.rs/3BYmBqo
UMich inflation expectations https://tmsnrt.rs/3SPNyT1
Inflation https://tmsnrt.rs/3w00VWY
AAII08122022 https://tmsnrt.rs/3zYl0hQ
Q3 earnings estimates https://tmsnrt.rs/3pddpH1
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)