Don’t forget the FOMC release is Wednesday afternoon, July 26th, and according to the CME FedWatch tool, there is a 99.5% chance the new fed funds range after Wednesday’s release will be 5.25% to 5.50%. Remember, history tells us any probability over 60% on the FedWatch tool, has never not happened.
This week, after commenting on it last week, the global custodian banks performed well, particularly Northern Trust (NASDAQ:NTRS). Even the iShares Regional Bank ETF (KRE) rose 7.5% this past week. Charles Schwab (NYSE:SCHW) too had a big week, up 13.60% after FHLB balances fell. Expenses ran a little hotter than expected, although organic “net new asset growth” was decent at +5.3% for Q2 ’23. (As the top 10 client holdings have indicated, Chuck has been a top 10 positions for years, but as of June 30 ’23, the stock was down 31% YTD. Very little SCHW has been sold YTD.)
The earnings reports of interest next week:
- Microsoft (NASDAQ:MSFT): Tuesday, 7/25, AMC
- Alphabet (NASDAQ:GOOGL): Tuesday, 7/25, AMC
- Coca-Cola (NYSE:KO): Wednesday, 7,26, BMO
- Boeing (NYSE:BA): Wednesday, 7/26, BMO
- Intel (NASDAQ:INTC): Thursday, 7/27, AMC
- BMO – before market opens
- AMC – after market closes
Exxon (NYSE:XOM) and Chevron (NYSE:CVX) report Friday morning, 7/28/23, before the open, and reports such as AT&T (NYSE:T) and Visa (NYSE:V) and several others will be scrutinized as well, just to see what the commentary details.
AT&T doesn’t trade well at all. S&P and Moody’s rate T’s long-term debt, BBB / Baa2 and the amount of long-term debt outstanding is $138 billion, down from $180 in mid ’21 (which is a plus), but that’s a lot of debt outstanding. Yes, the lead cable news led to a sharp decline in the stock this week, but the common stock currently sports an 8.5% dividend yield, and here’s the trend in free-cash-flow for T:
- 2023: $2.3 billion (one quarter, as of March ’23):
- 2022: $12.4 billion
- 2021: $26.4 billion
- 2020: $28.4 billion
- 2019: $29.2 billion
- 2018: $22.8 billion
- Source: Refinitiv’s Eikon
S&P 500 data
- The forward 4-quarter estimate (FFQE), fell a whopping $0.03 this week to $229.94 from last week’s $229.97, and early January, ’23’s $228.98;
- The PE on the FFQE is 19.7x this week, versus 19.6x last week, and 17x to start 2023;
- The S&P 500 earnings yield ended the week at 5.07%, versus 5.10% last week, and 5.86% to start the year;
- The Q2 ’23 S&P 500 “upside surprise” or beat rate is 7.4% as of this week, actually a little bit stronger than Q1 ’23’s +6.8%. That’s good news.
Here’s a great chart from Factset, posted to Twitter this week, showing the “average” upside surprise or beat rate for S&P 500 for the last 5 years, which is horribly distorted by the Covid period. The 9 quarters pre-Covid, averaged just 3.4% versus the above bar chart’s average for the 20 quarters of 8.8%.
Don’t bank on 8.8% every quarter. Jeff Miller, my now-deceased friend who ran the popular “Dash of Insight” blog and was someone I used to commiserate with about S&P 500 earnings data many times, thought the “average” upside surprise was historically between 2% and 5%.
Ed Yardeni probably has some thoughts on this topic, but I can’t specifically recall the commentary.
The point being the average upside surprise on the S&P 500 for long periods of time, is probably between 2% to 5%.
Summary/conclusion
Microsoft and Alphabet are two more “Magnificent 7” stocks (as someone coined them) to report Q2 ’23 financial results this coming week, and given how Netflix (NASDAQ:NFLX) and Tesla (NASDAQ:TSLA) responded to their respective earnings reports – both higher quality, large-cap growth stocks – the mega-cap names could be in for some profit-taking.
This chart from Chris Kimble speaks volumes:
Note the sentiment too.
The technician Trinity uses to provide technical analysis – Gary Morrow (Twitter: @GarySMorrow) – thinks some selling might be in store for technology stocks and the Nasdaq in the near future. Gary thinks the SMH or the semiconductor index is hitting a wall, which is interesting given how well Intel traded this week. IBM (NYSE:IBM), Cisco (NASDAQ:CSCO) and Intel have held up as the market seems to be sniffing out value and long-out-of-favor tech stocks.
Take all this as one opinion and with a considerable grain of salt. Past performance is no guarantee of future results and none of this is advice. Writing about S&P 500 earnings data keeps me disciplined and focused and makes sure that I at least stay on top of the data week to week. All S&P 500 EPS and revenue data is sourced from IBES data by Refinitiv, unless otherwise noted. Readers should gauge their own appetite for market volatility and adjust accordingly.