Earnings in Focus This Week

Robust growth, evolving outlooks and essential factors to watch this week

• Resilient market performance: S&P 500 and Nasdaq Composite gain.
• Inflation stabilization: Weaker economic reports prompt revised recession expectations.
• Focus on earnings releases: Prominent companies report financial performance, market influencers monitored.

Last week witnessed a robust performance in the financial markets, amplifying the gains accumulated throughout the year. The S&P 500 rose by 2.5%, reaching 4505.42, while the Nasdaq Composite surged by 3%, closing at 14113.70.

Noteworthy gains were observed across various industries, with notable mentions including Nvidia (NVDA) , Facebook's parent company Meta (META), Amazon (AMZN) and Activision Blizzard (ATVI) Blizzard. In addition, recent economic reports hint at a potential stabilization of inflation, prompting shifts in recession expectations and Federal Reserve predictions.

Nvidia recorded an impressive 7% increase, while Meta witnessed a 6% surge. Amazon celebrated its strongest Prime Day in history, leading to a 4% gain. Furthermore, Activision Blizzard experienced a remarkable rally of nearly 10% following a favorable ruling that cleared the way for its merger with Microsoft (MSFT).

Weaker-than-expected economic reports suggest a potential stabilization of inflation. The consumer price index and producer price index both fell short of expectations, reflecting cooling numbers that are gradually altering recession forecasts. In a recent Wall Street Journal poll, economists reduced the probability of a recession to 54% from the previous 61%. Moreover, there is a growing belief that the Fed will maintain interest rates unchanged, with an 83% probability predicted for its meeting in September.

Eyes on earnings releases this week

The focus for the upcoming week will primarily be on earnings releases, as several prominent companies prepare to report on their financial performance. Bank of America (BAC) is scheduled to announce its results before the market opens on Tuesday, while IBM (IBM), Netflix (NFLX), Tesla (TSLA) and United Airlines (UAL) will report their earnings after the market closes on Wednesday.

Particularly intriguing will be the performance of major bank stocks in the aftermath of the crisis in March. Additionally, the industry awaits Netflix's insights regarding ongoing writers' and actors' strikes and their potential impact on production plans. Tesla's recently unveiled cyber truck, following a substantial delay, will likely generate interest as investors anticipate information about orders and deliveries.

Russia's announcement of the termination of its grain export agreement sparked a rise in grain prices, especially wheat futures, which experienced an early trading surge of nearly 3%. In contrast, oil futures faced slight downward pressure because of China's announcement of weaker-than-expected second-quarter growth in gross domestic product (GDP). Although the 6.3% growth rate is respectable, it represents only a 1% increase from the previous quarter and may suggest a slowdown in China's economy, leading to mildly lower oil prices.

Watch the housing sector

Other elements worth monitoring include housing stocks and market volatility. Analysts' upgrades in the housing sector may indicate an anticipation of stabilizing interest rates. Notably, market volatility remains exceptionally low, with the VIX closing at just 13.34 on Friday, well below its historical average. While this may suggest market complacency, it is crucial for investors to remain vigilant, as seemingly insignificant news during such periods can unexpectedly impact markets. As always, it is advisable to adhere to long-term investment plans and objectives.

Last week's strong market performance and shifting expectations highlight the dynamic nature of the financial landscape. With notable gains across industries and changing projections for inflation, investors are eagerly awaiting upcoming earnings releases and closely monitoring various market influencers, including grain prices, oil futures, housing stocks and market volatility. Staying informed and maintaining a long-term investment strategy remain vital during these uncertain times.

JJ Kinahan is CEO of IG North America—which includes tastylive, tastytrade and IG's FX Business. Kinahan traded for 21 years at the Chicago Board Options Exchange. He serves on the CBOE Advisory Board and the SIFMA Options Committee. @thejjkinahan

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