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[See the full post at: Traders Market Weekly: Valuation Matters in Earnings Season]11 Jul '22 at 7:27 am #40072
US inflation data in the coming week may stiffen the resolve of Federal Reserve policy makers to proceed with another big boost in interest rates later this month.
The closely watched consumer price index probably rose nearly 9% in June from a year earlier, a fresh four-decade high, based on the median projection of economists in a Bloomberg survey. Compared with May, the CPI is seen rising 1.1%, marking the third month in four with an increase of at least 1%.11 Jul '22 at 7:28 am #40073
European Central Bank policy makers have until Wednesday to air views in public about their July 21 meeting before a pre-decision blackout kicks in. They’re preparing to start raising rates, and to unveil an accompanying crisis tool to mitigate the fallout on weaker euro members such as Italy.
ECB President Christine Lagarde will attend a meeting of euro-area finance ministers at the start of the week, though few other appearances are scheduled.
Likely to focus their minds is a temporary closure of the Nord Stream gas pipeline from Russia to take effect on Monday. German officials fear the shutdown for 10 days of routine maintenance may become permanent.
Among data due, euro-zone industrial production on Wednesday will probably signal slowing expansion as the second quarter progressed, while the state of the region’s worsening trade deficit — perhaps reflected in the euro’s drop to a two-decade low — will be revealed on Friday.
“There are stagflationary winds blowing — there’s no question about that,” ECB Governing Council member Yannis Stournaras told Bloomberg TV on Saturday, stressing that Europe isn’t seeing stagflation yet. “But for the moment we don’t expect negative growth this year or next year.”
In the UK, economists expect gross domestic product to have barely increased in May after a decline the previous month, in figures due on Wednesday.11 Jul '22 at 7:29 am #40074
The earnings season fires off with big reports due out from PepsiCo (NASDAQ:PEP), Delta Air Lines (DAL), and Taiwan Semiconductor (TSM) before a wave of reports from major banks like JPMorgan Chase (JPM), Wells Fargo (WFC), U.S. Bancorp (USB), and others. Investors in the banking sector will be watching to see if the decline in mortgage originations and refinancings is offset by higher revenue from credit lines. The corporate calendar for the week includes investor events for Dave & Buster’s Entertainment (NASDAQ:PLAY), Ferroglobe PLC (NASDAQ:GSM), Suncor (NYSE:SU) and Pure Cycle Corporation (NASDAQ:PCYO) – while Amazon (NASDAQ:AMZN) Prime Day and competing online sales will dominate attention in the retail sector. Inflation talk will also be front and center, with the consumer price index and producer price index reports both expected to be just as strong for June as they were for May.11 Jul '22 at 7:29 am #40075
Earnings spotlight: Monday, July 11 – Greenbrier (GBX), PepsiCo, PriceSmart (PSMT).
Earnings spotlight: Tuesday, July 12 – AngioDynamics (NASDAQ:ANGO).
Earnings spotlight: Wednesday, July 13 – Delta Air Lines (DAL) and Fastenal (FAST).
Earnings spotlight: Thursday, July 14 – Taiwan Semiconductor Manufacturing (TSM), JPMorgan Chase (JPM), Morgan Stanley (NYSE:MS), and Conagra (CAG).
Earnings spotlight: Friday, July 15 – PNC Financial (PNC), BlackRock (NYSE:BLK), Citigroup (C), PNC (PNC), State Street (STT), Wells Fargo (WFC), U.S. Bancorp (USB) and UnitedHealth (UNH).11 Jul '22 at 7:29 am #40076
Shareholders with ACE Convergence Acquisition Corp. (ACEV), FoxWayne Enterprises Acquisition Corp. (FOXW), Global SPAC Partners Co. (GLSPT), Brilliant Acquisition Corporation (BRLI), HPX Corp. (NYSE:HPX), and Chavant Capital Acquisition Corp. (CLAY) all meet during the week to vote on extending the deadline to close their respective SPAC deals.11 Jul '22 at 7:30 am #40077
Some of the notable companies forecast to boost their dividend payouts next week include Goldman Sachs (GS) to $2.50 from $2.00, Marsh & McLennan Companies (MMC) to $0.595 from $0.535, Morgan Stanley (MS) to $0.775 from $0.70, State Street (STT) to $0.63 from $0.57, Molson Coors (TAP) to $0.42 from $0.38,Bank of New York Mellon (NYSE:BK) to $0.37 from $0.34, Conagra (CAG) to $0.3375 from $0.3125, and Ryder (R) to $0.62 from $0.58. Amid the market turmoil, money manager Adviser Investments recommends financially sound companies that are likely to continue lifting payouts. The firm’s dividend strategy holdings include Microsoft (MSFT), Apple (AAPL), Costco Wholesale (COST), JPMorgan Chase (JPM), Nike (NKE), Procter & Gamble (PG), and PepsiCo. “Those well-capitalized companies that continue to increase their dividends through recessions are the companies you want to own,” noted analyst Josh McCourt.11 Jul '22 at 7:30 am #40078
Amazon Prime Day:
Consumers will be put to the test next week with Amazon (AMZN) holding its two-day Prime Day event, Target (TGT) running its three-day Deals Day event, Best Buy (BBY) having a Black Friday in July sale, Macy’s (M) holding a Black Friday in July event and Walmart (WMT) already offering high levels of markdowns. Jefferies estimated that Prime Day will contribute $8.1B to gross merchandise value and $4.7B to sales, which represents a 6% tailwind for GMW and 4% boosts for sales. “We see Prime Day helping to boost Prime adoption, especially in international markets, which have lower membership penetration and 3 new countries participating in 2022 Prime Day,” previewed the firm. Prime Day has helped drive incremental Prime Membership adoption in the past. Earlier this year, Amazon raised its Prime fees in the U.S. in March to $14.99 a month from $12.99 and to $139 a year from $119. The price increase is expected to drive ~$2.8B in incremental Prime subscription revenue from existing subs throughout the year. The read-through on inventory levels and discounting will be key as investors assess the outlook for the retail sector in Q3.11 Jul '22 at 7:31 am #40079
The publication churned out a list of the top dividend stocks to hold during a recession after pointing out that dividend stocks have historically declined less than the broad market during periods of economic downturn. While dividend payouts can be suspended or slashed during recessions, it was noted that even in the sharpest and deepest recession in modern history, S&P 500 dividends only fell by 3%. Johnson & Johnson (JNJ), Coca-Cola (KO), Colgate-Palmolive (NYSE:CL), Apple (AAPL), Costco Wholesale (COST), JPMorgan Chase (JPM), Nike (NKE), Procter & Gamble (PG), and PepsiCo (PEP) are mentioned as some of the dividend elite. Watsco (NYSE:WSO) also gets attention this week as a stock that looks attractive on a valuation basis. The air conditioning distributor is called a stable business that features consistent earnings and sales, and should be attractive to investors looking to play defense while benefiting from the heat. Watsco (WSO) trades at 17.8X estimated 2023 earnings per share, which is a 14% premium to the 15.6X multiple of the S&P 500 Index, but Watsco is observed to be growing faster than most companies and usually trades at a premium of almost 50% to its five-year average.11 Jul '22 at 7:32 am #40080
Equity indices in the Asia-Pacific region began the week on a mostly lower note.
China reported slightly hotter than expected inflation figures for June. Casinos in Macau have been shut down once again in response to a coronavirus outbreak.
Property developer Evergrande is on track for its first onshore default after creditors refused to extend a bond payment deadline. The shadow board of the Reserve Bank of New Zealand is calling for a 50-bps hike on Wednesday.
Japan’s Prime Minister Kishida is expected to reshuffle his cabinet in the coming months. The country’s ruling coalition maintained its majority following Sunday’s elections to the upper house.
Japan’s Nikkei: +1.1%
Hong Kong’s Hang Seng: -2.8%
China’s Shanghai Composite: -1.3%
India’s Sensex: -0.2%
South Korea’s Kospi: -0.4%
Australia’s ASX All Ordinaries: -1.2%11 Jul '22 at 7:32 am #40081
China’s June CPI 0.0% m/m (expected -0.1%; last -0.2%); 2.5% yr/yr (expected 2.4%; last 2.1%). June PPI 6.1% yr/yr (expected 6.0%; last 6.4%). June New Loans CNY2.81 trln (expected CNY2.40 trln; last CNY1.89 trln) and June total social financing CNY5.17 trln (expected CNY4.20 trln; last CNY2.79 trln)
Japan’s May Core Machinery Orders -5.6% m/m (expected -5.5%; last 10.8%); 7.4% yr/yr (expected 5.8%; last 19.0%). June Machine Tool Orders 17.1% yr/yr (last 23.7%)11 Jul '22 at 7:32 am #40082
Major European indices trade in the red amid continued growth-related concerns.
The U.K.’s foreign secretary Truss announced her candidacy for prime minister.
The U.K.’s newly appointed chancellor said there is no need for an emergency budget at this time.
Gas flow through the Nord Stream pipeline has been suspended for a ten-day maintenance period.
STOXX Europe 600: -0.5%
Germany’s DAX: -1.1%
U.K.’s FTSE 100: -0.5%
France’s CAC 40: -0.9%
Italy’s FTSE MIB: -0.4%
Spain’s IBEX 35: -0.5%11 Jul '22 at 7:32 am #40083
Italy’s May Retail Sales 1.9% m/m (last 0.3%); 7.0% yr/yr (last 8.3%)11 Jul '22 at 7:33 am #40084
A few casino stocks with exposure to Macau are down big in premarket action after new lockdown measures were announced.
Specifically, Wynn Resorts (WYNN 53.10, -3.36, -6.0%), Las Vegas Sands (LVS 32.80, -1.58, -4.6%), and MGM Resorts (MGM 28.60, -0.74, -2.5%) are all exhibiting sizable losses before the open.11 Jul '22 at 7:33 am #40085
Bank of America (BAC 31.68, -0.11, -0.4%): Bank of America was upgraded to Buy from Hold at Societe General.
Deere (DE 303.00, -1.64, -0.5%): Deere lost its patent case to AGCO Corp.
Twitter (TWTR 35.06, -1.75, -4.8%): Elon Musk sent a letter to Twitter formally notifying Twitter that Elon Musk is terminating their merger agreement; Twitter Board confident in merger agreement and intends to close transaction at $54.20 per share price.
Greenbrier (GBX 31.00, -1.62, -5.0%): Greenbrier reports Q3 (May) results, beats on revs
STMicroelectronics N.V. (STM 31.29, +0.05, +0.2%): STMicroelectronics planning new chip foundry
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