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Keep Your Eyes on the Airlines This Earning Season

By:JJ Kinahan

While the big banks and tech stocks matter, pay attention to what the airline's earnings tell us about the economy

  • Yield on the 10-year note exceeded 4% for first time since March.
  • TSM beats expectations.
  • Low unemployment puzzled observers who have beeb expecting recession.

Both the S&P 500 (SPX) and Nasdaq Composite (IXIC) declined about 1% in the last week. Meanwhile, bonds dipped as yields surged in anticipation of a potential Federal Reserve rate hike later this month.

It was the first time since early March that the yield on the 10-year note exceeded 4%, finishing the week at 4.05%. The week ahead promises an abundance of economic data and the beginning of the earnings season, with major banks announcing their results Friday.

Unemployment at 3.6%

The recent jobs report, despite being slightly weaker than anticipated, still indicated a strong labor market with escalating wages and a low unemployment rate of just 3.6%. The economy's persistent strength has puzzled many who have predicted a recession. The same vigor indicates a likely quarter-point interest rate increase at the Federal Reserve Open Market Committee (FOMC) meeting in two weeks. While the Fed has hinted at two possible rate hikes in the second half of the year, current market predictions count on just one.

The consumer price index (CPI) report scheduled for Wednesday will weigh heavily on the Fed's decision. The report for July is expected to demonstrate a 0.3% monthly increase, down slightly from the previous month's 0.4%. Annually, prices are expected to surge by 5%, a decrease from June's 5.3%. After the CPI report, the focus will shift earnings, beginning on Friday.

Financial giants Citigroup (C), JP Morgan (JPM), and Wells Fargo (WFC) are all set to announce their second-quarter earnings before the market opens on Friday. The following week, Netflix (NFLX) and Tesla (TSLA) are slated to report earnings. On average, earnings for the second quarter are projected to be down 7.2% year-over-year.

It is intriguing to note price multiples. The S&P 500 started 2023 with a price to earnings multiple of 17, which has since risen to 19. Although this is not significantly above its mean of 18.6, the increase in multiple amid the expected decrease in earnings is noteworthy.

What's more, with banks starting to announce their earnings on Friday, we have already begun to see some earnings reports.

DAL coming up Thursday

Taiwanese Semiconductor (TSM) reported higher earnings than expected. Still, the company anticipates a challenging second half of the year. Delta Airlines (DAL) and PepsiCo (PEP) are both set to report earnings on Thursday before the market opens. Take heed of Delta's insights regarding consumer travel demand and changes in vacation plans. As always, adhere to your investment plan and long-term goals.

The week ahead is critical, with a lot of economic data and earnings reports scheduled for release. That will provide a better understanding of the market direction and investor sentiment. Just remember that market volatility is part of trading.

tastytrade, Inc. commentary for educational purposes only. This content is not, nor is it intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.

JJ Kinahan is the 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.

For live daily programming, market news and commentary, visit tastylive or the YouTube channels tastylive (for options traders), and tastyliveTrending for stocks, futures, forex & macro.

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