Earnings and Fed Week
The equity markets were mixed last week waiting on 2ns quarter earnings and this week’s FOMC meeting. The S&P 500 rose +0.7%. The Q2 earnings season is underway. Several banks beat estimates and suggested higher interest rates are finally helping net interest margins. Some big growth names like Tesla and Netflix reported good results but their stocks were sold by investors. So far, consensus expectations point to an -8% y/y decline in S&P 500 profits, or about -3% excluding energy. Health care and materials look weak along with energy, while consumer discretionary has the strongest expectations. The recent rally in equities has been driven largely by a rebound in valuations as real interest rates stabilized and inflation expectations have dropped. Since the start of April, the S&P 500 P/E has expanded from 18x to 20x.
The S&P 500 benchmark ended the week at 4,536, up from the prior Friday’s closing price of 4,505. The index is now up +1.9% for July to date and up +18% for the year to date.
The energy and health care sectors had the largest percentage gains of the week, climbing +3.5% each, followed by a +3.0% rise in financials. Other winning sectors included utilities, consumer staples, industrials, and materials. Four sectors were down, led by communication services, down -3.0%, and consumer discretionary, down -2.3%. Real estate and technology also fell.
In health care, shares of Johnson & Johnson (JNJ) rose +6.5% as the health products company reported Q2 results above analysts’ expectations, boosted its full-year guidance, and announced an accelerated spinoff.
Financials rose led by Zions Bancorp (ZION), whose shares jumped +18% this week as the regional bank reported Q2 earnings per share and revenue above analysts’ mean estimates. Among bigger banks in the financial sector, shares of Bank of America (BAC) rose +9.9% as its Q2 results also topped Wall Street’s expectations, boosted by a combination of higher interest rates and continued organic client growth.
Consumer discretionary stocks fell led by shares of Tesla (TSLA) with a -7.6% drop for the week. The electric vehicle manufacturer’s Q2 revenue and adjusted earnings per share came in above Street views, but Chief Executive Elon Musk also warned that the company expects Q3 production “will be a little bit down” and said the company might need to cut prices further.
This week’s earnings schedule features companies including Microsoft (MSFT), Alphabet (GOOGL), Visa (V), Meta Platforms (META), Coca-Cola (KO), Boeing (BA), Amazon.com (AMZN), Mastercard (MA), AbbVie (ABBV), McDonald’s (MCD), Intel (INTC), Exxon Mobil (XOM), Procter & Gamble (PG) and Chevron (CVX).
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