Dumaine Investments Weekly Market Update – July 19, 2023
• US stocks have rallied over the past week in response to lower headline inflation numbers and some surprisingly good early earnings results. While year-over-year earnings are expected to be down sharply in many sectors – estimates point to earnings-per-share for S&P 500 companies falling by 8.1% from a year ago, according to the Wall St Journal – several prominent companies have outperformed quarterly expectations, leading the market to new heights as of Tuesday’s close.
• As earnings season ramps up, financial companies are in the spotlight. The trio of big banks reporting last Friday – JPMorgan, Wells Fargo and Citi – all beat earnings expectations for the second quarter as the Fed tightening cycle helped more than it hurt, particularly for JPM, which was able to snap up First Republic at a bargain price. Although all three banks struck a positive tone about the health of the U.S. consumer, they acknowledged that the situation could change in coming months. Wells Fargo CEO Charles Scharf said that while the economy is performing better than expected, he sees it continuing to slow with uncertainty remaining.
• One of the major risks we see as the third quarter begins is a heightening in geopolitical tensions, with a ramp-up in the Ukraine War and the potential of further ruptures in US-China relations. Russia has decided to end the Ukraine grain-export deal roughly a year into the agreement, thereby increasing uncertainty over global food supplies and their prices. Meanwhile, Treasury Secretary Yellen’s trip to China did not allay fears of growing tensions. Moreover, she expressed concern about the likelihood of China’s economic slowdown having ripple effects through the global economy. After a batch of Chinese economic data came in weaker than expected on Monday, Yellen said that “many countries do depend on strong Chinese growth to promote growth in their own economies…and slow growth in China can have negative spillovers for the US.”
• Over the next week, analysts will be focused on both company earnings and forthcoming economic data (notably building permits, initial jobless claims, and home sales) ahead of the Fed’s interest rate decision next Wednesday.
DISCLAIMER: The information provided in this blog post is for informational purposes only and should not be construed as financial advice. Investment decisions should be based on individual financial goals, risk tolerance, and consultation with a qualified financial professional.