Earnings Season Goes into Full Swing!

The Fed meeting on Tuesday and Wednesday, together with a deluge of earnings reports, is likely to make this coming week one of the most important of the summer season. Last week, stocks continued trading up, except for the Dow Jones, which lagged behind if only by small measure, recording slight declines. All of the 3 large indexes on Wall Street, the Dow Jones, the NASDAQ and the S&P 500, achieved new historic highs during the trading week, though ended Friday’s trading a tad short of these newly achieved highs.

The market was spinning on all cylinders on Wednesday of last week, meaning that Friday’s profit taking was no surprise, especially seeing that the day could be characterized by nothing more than “price digestion” after the prior upsurge. It’s not unusual for the market to reach overbought levels in the short-term, as was the case in the middle of last week – and after all, the market’s tendency after high index readings is to go on to record further gains in the weeks thereafter.

The Federal Reserve isn’t expected to change rates in its 2-day meeting this week, though the central bank is likely to offer further detail about its plans to cut its balance sheet down to size – the bank also expected to discuss inflation. More than one-third of the companies on the S&P 500 are expected to report this coming week, some of the market’s tech leaders among them. The week’s most important economic figure will be the Gross Domestic Product (GDP) reading, the consensus on Wall Street being Q2 growth of 2.5%.

For the stock market, it could be all or nothing this week, with 180 S&P 500 companies reporting, alongside 13 Dow companies, the most noteworthy among them being Facebook (FB), Amazon (AMZN), and Google (GOOGL), along with Exxon-Mobil (XOM), McDonalds (MCD) and Boeing (BA).

The Q2 earnings season is expected to come out strong but not as strong as the 15% earnings growth recorded in Q1. Until now, 74% of the companies on the S&P 500 which have already reported have outstripped analysts’ forecasts, with earnings growth coming in at 9.6%.

Investors will be waiting for the Fed announcement on Wednesday, but until then, the dollar will be carefully followed after having fallen sharply against the Euro by 1.7% last week, and having now fallen 10% against the continental currency year-to-date. Part of the reason for the dollar’s trending weakness is that the European Central Bank, which has taken a tougher stance regarding resuming its QE initiative, in contrast to the Fed which has come across as more patient, investors even doubtful that the Fed will hike rates again this year. Investors now project chances of only 40% that the Fed will hike rates in December. Fed Chairwoman, Janet Yellen, altered investors’ expectations with her latest comments on inflation, meaning that this will probably be the topic receiving the most attention when the market responds to the FOMC announcement on Wednesday at 14:00.

On the political front, the focus will continue to be on Washington D.C. this coming week, where the Senate is expected to continue to hone its energies on cancelling and replacing Obamacare. Expectations on Wall Street are high that politicians will free up their time to concentrate their energies on sweeping tax reform and that part of the reform will go into effect already at the beginning of next year. Many believe that motivation on the part of Congress is high in so far as cutting taxes by the beginning of 2018 goes; after all, that’s what could help Republicans preserve their congressional majority in mid-term elections.

In Summary: Earnings reports are going to command most of the market’s attention with FANG companies reporting this week. It waits to be seen the extent to which bulls can capitalize on the Q2 numbers to make another upward move – or whether the strong Q2 numbers have already been baked in, as was the case last week with Microsoft (MSFT). And to complicate things more, we’ll have to see how the negative seasonality at this time of the year plays out in the marketplace, if at all. One thing you can bank on is this: that that earnings season will produce opportunities aplenty for trading and investing, which will be the case for a few weeks to come! So, buckle up!

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Have a great trading week!


Economic Calendar


DAYTIME (EST)EventForecastImpact
Monday10:00Existing Home Sales5.58MMedium
Tuesday9:00S&P Case-Shiller Home Price Index5.7%Medium
Tuesday9:00FHFA Housing Price Index0.7%Medium
Tuesday10:00Consumer Confidence116.8High
Wednesday10:00New Home Sales610KMedium
Wednesday10:30Crude Oil InventoriesLow
Wednesday14:00FOMC Rate DecisionHigh
Thursday8:30Durable Orders2.9%Medium
Thursday8:30Initial Claims240KHigh
Friday8:30Employment Cost Index0.6%Medium
Friday10:00Michigan Sentiment – Final93.1High

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216.6.2017AABA (YHOO)LongClose26.6.2017+3.14%