As the second-quarter earnings season comes to a close, reports indicate that 79% of companies in the S&P 500 have reported positive earnings surprises, while 60% have reported positive sales surprises. Currently, the blended year-over-year earnings growth rate stands at 10.9%, the highest rate we have seen since the final quarter of 2021. Nvidia is set to be the grand finale of this earnings reporting season on August 28th.
Despite a decline in manufacturing over the past 21 months, the US GDP growth continues to be fueled by a thriving service sector and rising energy exports. Meanwhile, as the Presidential election cycle gains momentum, Kamala Harris and the Democrats have been meeting this week. In sync with Donald Trump’s promise, Harris has pledged not to tax tips. Although she has yet to commit to exempting Social Security benefits from taxes, it won’t be surprising if she unveils new benefits during her upcoming speech in Chicago this week.
As a result, the first Presidential debate, scheduled for September 10th, is expected to be of great significance, with consumer confidence projected to rise as candidates make enticing promises.
Now, let’s take a look at the most significant news items impacting the market and what they signify:
– This week, the Democratic National Convention (DNC) and the Kansas City Fed’s annual retreat in Jackson Hole will dominate the headlines. While it remains to be seen if protestors from Palestine will disrupt the DNC, it’s worth noting that the official protests have been moved offsite, and any attempts to approach the convention may result in arrests. Market focus will also be on Fed Chairman Jerome Powell’s economic outlook speech on Friday, alongside other central bankers’ guidance at the Jackson Hole event.
– On Wednesday, the Labor Department is expected to announce a significant statistic revision, highlighting the potential disappearance of up to 1 million payroll jobs. This revision is mainly due to individuals having multiple jobs. Goldman Sachs anticipates a downward revision of 600,000 jobs, while JP Morgan expects 360,000 jobs to be affected. Clearly, such a downward revision in payroll jobs has the potential to cause an increase in the unemployment rate, which could prove embarrassing during the DNC. Additionally, the Atlanta Fed revised its third-quarter GDP estimate to a 2% annual pace, down from the previous 2.4% estimate.
– Crude oil prices remain high due to Russia’s troubles following the Ukrainian incursion into the Kursk region, coupled with the possibility of escalated tensions in the Middle East, particularly if Iran retaliates against Israel for the killing of a Hamas leader in Tehran. It’s worth noting that Russia’s crude oil exports have declined by 13% since April, with the latest week witnessing a drop of 360,000 barrels per day to 2.93 million barrels per day.
– Amidst the chaos, gold prices have surged by 20% this year, reaching $2,500 per ounce last week. This steady rise can be attributed to uncertainty and a lack of confidence in central banks. Interestingly, gold coins and bars are currently available at Costco, but they tend to sell out rapidly. American Eagle gold coins are among the available options at Costco.
– Kamala Harris might disclose additional details at the DNC regarding her campaign against food price gouging. Last week, her campaign announced plans to introduce the first-ever federal ban on price gouging in the food and groceries sector, setting clear rules to prevent corporations from unfairly exploiting consumers for excessive profit. However, a potential problem arises as major food producers like Hormel and Tyson Foods rely on immigrant labor and actively assist their immigrant employees in achieving legal status in the US. In other words, these food companies are among the primary beneficiaries of the Biden Administration’s open border policies, aiding immigration applications for green cards. Consequently, the effectiveness of the Harris campaign’s threat to penalize major food companies may wane, considering these companies actively contribute to immigrant assimilation and legal status attainment.
– Brazil is currently facing the repercussions of running a large budget deficit. Lulu da Silva has been President for almost two years, and the Brazilian real remains weak due to one of the world’s largest budget deficits, amounting to 10% of GDP. Lulu’s administration has struggled to curtail spending, potentially leading Brazil down the path of devaluing its currency, similar to Argentina. Meanwhile, to defend the real, the Brazilian central bank continues to raise interest rates, with projected rates reaching 10.5%.
Overall, Nvidia’s earnings announcement on August 28th is anticipated to be the highlight of the second quarter. Analysts are predicting a staggering 156% rise in Nvidia’s earnings, reaching 64 cents per share. With analysts revising their consensus earnings estimate up by 10.3% in the past week, positive revisions often precede earnings surprises. It is important to note that Nvidia’s dominance in the market has played a significant role in the stock market’s impressive rebound following the Japanese carry trade selloff, which had spooked many investors.