Q2 Earnings Season Kicks Off Amid Economic Uncertainty

The Final Peak Week Of The Q2 Season Begins Amid Souring Economic Data

Earnings have come in better-than-expected, but tend to be overshadowed by economic data. Last week started out with disappointing results from McDonald's (MCD) and Microsoft (MSFT). In the middle of the week, both Fed commentary which nearly confirmed a September rate cut and outstanding Meta (META) results lifted markets, only to be undone on Thursday and Friday by weaker-than-expected jobs data. Earnings season continues to plod along, with more companies beating EPS estimates than the long-run historical average, yet the amount by which these companies are beating is less than usual. Mega tech results, closely watched for signs of continuing AI demand, came in mixed. In addition to AI updates, there were other key metrics that investors were watching closely. For Microsoft, slowing cloud revenues caused investors to punish the stock after the report. Meta shares were rewarded after they reported strong ad revs and better-than-expected revenue guidance for Q3. By contrast, Amazon's (AMZN) stock took a leg lower after reporting waning ad revenues. Apple (AAPL) was the wild card here, and although sales in China continued to bottom-out, better-than-expected revenues for the iPhone and Services segments led to an uptick after the report. According to FactSet, the current consensus for S&P 500® EPS growth is for 11.5% YoY, an increase from 9.8% last week. Thus far, 78% of companies that have reported have surpassed analyst profit estimates, while only 59% have beaten on revenues. The FOMC meeting and economic data were also in focus this week. On Wednesday, Federal Reserve Chairman Jerome Powell all but confirmed the first rate cut since 2020 would likely occur at the September meeting. There is also a high probability of rate cuts at the November and December meetings as well, according to the CME FedWatch tool. An additional 3 cuts are expected in the first half of 2025. Now the question is becoming whether or not the Fed waited too long to cut rates as certain economic indicators show signs of weakening. On Tuesday, the June JOLTS report showed that job openings slowed for the month, and both hiring and quit rates decreased. The cooling jobs data continued on Thursday, when Initial Jobless Claims came in higher-than-expected for the week prior. It all culminated with a disappointing June jobs report on Friday. Nonfarm Payrolls (NFP) of 114,000 were well-below expectations, unemployment ticked up to 4.3%, the highest rate in nearly 3 years, and wage growth grew less-than-anticipated. In response, the Dow Jones, S&P 500 and Nasdaq Composite were all down more than 2%. Academic research shows that when a company confirms a quarterly earnings date that is later than when they have historically reported, it's typically a sign that the company will share bad news on their upcoming call, while moving a release date earlier suggests the opposite. This week, we get results from a number of large companies on major indexes that have pushed their Q2 2024 earnings dates outside of their historical norms. Fifteen companies within the S&P 500 confirmed outlier earnings dates for this week, all of which are later than usual and therefore have negative DateBreaks Factors*. Those names are Williams Companies (WMB), CSX Corp. (CSX), IDEXX Laboratories (IDXX), DaVita Inc. (DVA), Molson Coors Beverage Company (TAP), Baxter International (BAX), MarketAxess Holdings (MKTX), Caterpillar Inc. (CAT), Hilton Worldwide Holdings (HLT), NiSource Inc (NI), Global Payments, Inc. (GPN), Rockwell Automation Inc (ROK), Parker-Hannifin Corporation (PH), Martin Marietta Materials (MLM), and Gilead Sciences Inc. (GILD). CSX Corp. (CSX) Company Confirmed Report Date: Monday, August 5, AMC Projected Report Date (based on historical data): Thursday, July 18, AMC DateBreaks Factor: -2* CSX is set to report Q2 2024 results on Monday, August 5, over two weeks later than usual, and the first time they've ever reported Q2 in the month of August. This also appears to be their first Monday report in at least the last decade, as they usually favor a Tuesday or Wednesday report date. On March 26, a massive container ship crashed into Baltimore's Francis Scott Key Bridge, causing it to collapse and closing the port for the majority of Q2. Baltimore is the second-largest coal export port, and CSX has a major coal shipping segment, which was negatively impacted by the closing of the port. In the quarters prior to this disaster, CSX and its peers have been dealing with a global freight recession, which experts believe has bottomed, but freight rates will likely remain low in 2025 on the road to recovery. Caterpillar Inc. (CAT) Company Confirmed Report Date: Tuesday, August 6, BMO Projected Report Date (based on historical data): Tuesday, July 30, BMO DateBreaks Factor: -2* Caterpillar is set to report Q2 2024 results on Tuesday, August 6, a week later than anticipated. This also pushed results into the 32nd week of the year, while the industrials giant tends to report in the 30th or 31st week of the year. This would be the latest Q2 report ever for CAT. Caterpillar tends to serve as a bellwether for global economic health as the world's leading manufacturer of machinery and construction equipment. Last quarter, the company warned that sales were cooling as dealers tightened up on equipment inventories after a multi-month boom in demand. Investors will be looking for updates on machinery sales, which could indicate something broader about the global economy. VF Corporation (VFC) Company Confirmed Report Date: Tuesday, August 6, BMO Projected Report Date (based on historical data): Tuesday, July 30, BMO DateBreaks Factor: -2* VF Corp is set to report FQ1 2025 results on Tuesday, August 6, a week later than anticipated. Since switching to a fiscal year-end of March 31 in 2018, this is the latest they've reported Q1 results, and the first time they've reported them in the 32nd week of the year. On May 22, VFC announced they had tapped Spotify's Paul Vogel as their new CFO. Vogel took his post on July 8, which could explain the latter than usual earnings date. VFC, like many other apparel companies, has struggled this year to attract consumers that are increasingly more discerning with how they spend their discretionary dollars, especially as many of the brands they own (North Face, Vans, Timberland) tend to be on the middle-higher end. This marks the final peak week of Q2 earnings season, with 3,908 companies expected to report. Currently, August 8 is predicted to be the most active day with 1,411 companies anticipated to report. Thus far, 80% of companies have confirmed their earnings date (out of our universe of 11,000+ global names), and 37% have reported results. 3 Amazon.com Announces Second Quarter Results, August 1, 2024 4 Apple reports third quarter results, August 1, 2024 5 FactSet Earnings Insight, FactSet, John Butters, August 2, 2024 6 FactSet Earnings Insight, FactSet, John Butters, August 2, 2024 7 Fed recap: Chair Powell gives the September rate cut signal traders were hoping for, CNBC, Darla Mercado, July 31, 2024 8 FedWatch, CME Group, August 2, 2024 9 Job Openings and Labor Turnover Survey, U.S. Bureau of Labor Statistics, June 30, 2024 12 Time Will Tell: Information in the Timing of Scheduled Earnings News, Journal of Financial and Quantitative Analysis, Eric C. So, Travis L. Johnson, Dec, 2018

North American Morning Briefing : Stock Futures Edge Higher; Nikkei Gains 10%

Stock futures edged higher on Tuesday after Asian markets rebounded, with the Nikkei closing up 10%, following the global selloff. "The rally back in risk has markets coming a long way from the U.S. equity open yesterday," Deutsche Bank said, adding that in particular a stronger-than-expected service sector survey "may well have helped persuade markets that Friday's employment report wasn't quite as bad as it had feared." Still, markets continued to price in a heightened chance that the Federal Reserve will need to start reducing borrowing costs more quickly than had been thought until recently. The probability of a 50 basis point interest rate cut at the Fed's September 18th meeting is 77.5%, up from just 13.2% a week ago, according to the CME FedWatch tool. Earnings reports are expected from Amgen, Caterpillar, Uber Technologies, Rivian Automotive, Airbnb, Marathon Petroleum, and Fortinet. Premarket Movers Lucid Group reported better-than-expected revenue growth and a new slug of funding, sending shares up more than 10% premarket. Nvidia rose about 2%. Investors are concerned about possible delays to Nvidia's launch of next-generation AI chips. Palantir Technologies reported strong growth in its U.S. commercial revenue business, driven by AI demand. Shares rose more than 10%. Robinhood Markets was on course to claw back about some of Monday's losses, rising 5% premarket. Outages plagued trading platforms including Robinhood during the selloff. ZoomInfo Technologies said its longtime finance chief is leaving and cut its revenue forecasts. Shares fell 16%. Monday's Post Close Movers Chegg swung to a net loss and lost subscribers in the second quarter. Shares fell 19%. EverQuote posted higher-than-expected second-quarter earnings amid a recovery in the auto-insurance market. Share rose 15%. Lumen Technologies secured $5 billion in new business and is in active discussions with customers to secure another $7 billion in sales opportunities, both thanks to artificial intelligence. Shares rose 51.7%. Today's Top Headlines/Must Reads: - This Doesn't Look Like Recession. Here's How One Could Happen. - Market Selloff Upends Fed Rate-Cut Calculus - Struggling AI Startups Look for a Bailout from Big Tech The dollar rose after better-than-expected ISM services data eased concerns about potential recession and a possible need for significant interest-rate cuts. Also helping were comments by Fed official Goolsbee that the central bank won't overreact to one soft jobs print. "All this may not be entirely consistent with the 111 basis points of easing priced into the dollar curve by year-end," ING said. The dollar's recovery may prove short-lived given expectations for aggressive interest rate cuts, ING said. The dollar's rate advantage has been trimmed and "there is room for pro-cyclical currencies to readjust higher versus the dollar on the back of more favorable rate differentials." Energy: Oil prices regained some ground after sliding in the previous session on concerns over weak demand and a sharp global markets selloff. "Investors have been exiting commodities in recent weeks, [as] highlighted in positioning data," ING said. "This souring in speculative appetite comes despite oil fundamentals still looking supportive." Growing fears of a full-scale war in the Middle East and overnight data showing U.S. service sector activity rebounded in July provided some support to prices. Reports that production at Libya's Sharara oil field-the country's largest-has been completely halted due to protests at the site was also offsetting some of the macro bearishness, according to analysts. Metals: Gold futures edged up, consolidating after Monday's slump, and ING said bullion should regain its footing given persistent geopolitical tensions and expectations of Fed interest-rate cuts. Copper ticked lower, having hit its lowest level since March in Monday's broader selloff in global equity markets, driven by growing concerns over the risk of recession in the U.S., ING added. For the wider metals complex, this has added to demand concerns from China and rising global inventories. UBS said lithium isn't out of the woods yet after a plunge in prices for the battery metal. UBS has a FY 2025 lithium-price forecast of $1,000/ton, just below consensus of $1,015/ton. TODAY'S TOP HEADLINES Google's Antitrust Loss Set to Reshape Search and Mobile Industries Google's loss in a historic U.S. antitrust trial is reverberating across Silicon Valley, where the ruling is likely to affect not just the search giant but also its largest collaborators and competitors. Google parent Alphabet's deals to get its search engine in front of users by paying to be the default on browsers and mobile phones have been declared illegal by a federal judge. OpenAI Co-Founder Leaves for Amazon-Backed Rival Anthropic OpenAI co-founder John Schulman is leaving the company to join rival firm Anthropic, an artificial-intelligence startup backed by Amazon. Schulman said in a post late Monday on social-media platform X that he wanted to focus more on AI alignment. The term refers to the development of safety systems to ensure employees can control the technology they create, in line with a set of human values, even if the tech exceeds human capabilities. Fed's Daly Isn't Worried About the Jobs Report-or an Impending Recession San Francisco Federal Reserve President Mary Daly isn't overly concerned about the July jobs report-and certainly not about an impending recession. A "policy adjustment" is still coming sooner rather than later, she said on Monday, and there's no cause for alarm. This Bond Market Indicator Says the Stock Market Will Be Fine The stock market's slide is forcing investors to take a hard look at the economy. The good news: Indicators in the credit market-for the moment-say the stock market will be just fine. The S&P 500 sold off Monday and is now down 8% from its record high hit in July. Whistleblower Legal Sector Welcomes DOJ Pilot Program, but Concerns Remain The U.S. Justice Department launched its first cash-for-tips program last week, but some critics see potential flaws in the three-year trial plan such as the lack of a dedicated fund to pay whistleblowers and a $50 million award ceiling. The pilot program, which began Thursday, offers financial payouts to people who give the Justice Department original information or analysis relating to financial crimes, bribery or healthcare fraud. Deputy Attorney General Lisa Monaco announced the program's inception in March. U.S. Faces New Challenges as Potential Iran Attack on Israel Nears WASHINGTON-The Biden administration is working to blunt a potential Iranian attack on Israel, but it faces an array of fresh challenges as it seeks to replicate the success it had in April when a multinational coalition helped Israel intercept a barrage of Iranian missiles and drones. U.S. officials said they have since the weekend started seeing Iran moving missile launchers and conducting military drills, which could indicate Tehran is preparing for an attack in the coming days. Iran has signaled it plans to retaliate against Israel for the killing of a senior Hamas leader in Tehran. Cracks in Economy Pose Risk to Harris's Momentum WASHINGTON-Recent economic turbulence threatens to reinforce voters' view that the American economy is shaky, giving former President Donald Trump's campaign a chance to shift onto stronger ground in his race against Vice President Kamala Harris. "TRUMP CASH vs. KAMALA CRASH!" Trump wrote in all caps Monday on his Truth Social platform, as he seized on the turbulence that triggered investor panic in the U.S. "Voters have a choice - Trump prosperity, or the Kamala crash & great depression of 2024." 23:50/JPN: Jul International Reserves / Foreign Currency 23:50/JPN: Jul Provisional Trade Statistics for 1st 20 days of Month All times in GMT. Powered by Kantar Media and Dow Jones. Ares Commercial Real Estate (ACRE) is expected to report $0.11 for 2Q. Avient Corp (AVNT) is expected to report $0.52 for 2Q. Baxter International Inc (BAX) is expected to report $0.59 for 2Q. Bloomin' Brands Inc (BLMN) is expected to report $0.59 for 2Q. Builders FirstSource Inc (BLDR) is expected to report $2.63 for 2Q. Fidelity National Information Services Inc (FIS) is expected to report $0.70 for 2Q.