Tuesday, February 7, 2023
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Surprises? Not Many – The Large Image



“With over 71% of S&P 500 corporations completed reporting revenues and earnings for Q2-2021, the income and earnings surprises are at their lowest ranges for the reason that pandemic restoration started. Revenues are beating the consensus forecast by 2.5%, and earnings have exceeded estimates by 5.6%.”  –Ed Yardeni


We enter the canine days of summer season with markets coming off of their finest July in years. There may be some hope that the lows set in June might be “the underside” and that markets can return to their prior upward bias.

Loads of skepticism stays that it’s this simple: Markets have seemingly discounted a gentle recession already however nothing extra critical; the two/10s yield curve has inverted slightly extra deeply than final time; CPI comes out subsequent week, offering a contemporary trace as to the place inflation is, and what the Fed may do at their September assembly. If all goes effectively, maybe all of the optimism is warranted.

And but . . .

There are many methods this rally can peter out. The most important considerations are company income and earnings. All issues thought of, they’ve been holding up slightly effectively. It seems traders are counting on earnings to remain strong even when the financial system suffers a brief, shallow recession.

Take into account the Yardeni chart (prime) displaying incomes surprises: Regardless of quite a lot of financial and geopolitical negatives, earnings have been holding up comparatively effectively. (Revenues, too). And on condition that we’re nearly 3/4s of the best way by means of Q2 earnings season, the chances of additional surprises are inclined to drift decrease (the larger upside/draw back surprises are inclined to pre-announce).

My fear will not be Q2 earnings however slightly, Q3: As we’ve got mentioned repeatedly, shoppers and companies have proven continued power all through the primary half of the yr. The priority is the influence of the aggressive FOMC tightening cycle. The dynamic outcomes of those modifications weren’t felt within the first two quarters of the yr. The consecutive adverse GDP prints have been extra a technical mixture of stock construct, commerce, a robust greenback, and excessive inflation than an precise contraction of financial exercise.

However that was earlier than we had two consecutive 75 foundation will increase in charges — we went from zero a yr in the past to 2.25-2.50% from what was successfully zero previous to March of this yr. And that’s earlier than we ended quantitative easing (QE), and changed it with quantitative tightening (QT).

September is after we might see preannouncements which are slightly ugly. It’s a bit too neat to anticipate an October revisit of the lows because the FOMC’s overtightening impacts company income, however that’s actually one risk.

I famous close to the lows in June that I “The contrarian in me is simply beginning to get that itch to purchase right here, but it surely’s not a full-throated “Gotta gotta gotta get some” like 2020 or 2009.” I believe the potential for a terrific buying and selling entry is on the market someplace. Finish of Q2 or starting of Q3 are attainable dates, relying upon how issues play out.

Within the meantime, the Canine Days of Summer time are right here. Take pleasure in them when you can…




Supply: Yardeni Analysis


Indicators of Softening (July 29, 2022)

Gentle Touchdown RIP (July 25, 2022)

Why Recessions Matter to Buyers (July 11, 2022)

Too Late to Promote, Too Early to Purchase… (June 16, 2022)






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