A perceived dovish tilt at the Fed wasn't the only reason stocks rallied last week. It's earnings season – that wonderful time when leaders of publicly traded companies tell investors how they performed during the last quarter and share expectations for the future. Investors review the information and use it to make decisions about whether to buy, sell or hold shares.
More than half of companies in the Standard & Poor's 500 Index had reported by the end of last week. Earnings (profits) were better than expected for about three out of four of those companies. So far, companies in the energy and industrials sectors are the standouts for the second quarter. Energy sector earnings were up 290.3 percent and industrial sector earnings were up 25.7 percent, reported John Butters of FactSet. The consumer discretionary (down 17.9 percent) and financials (down 25.0 percent) sectors are the weakest performers, to date.
Revenue, which is the value of goods and services sold, was up more than 12 percent among the companies that have reported so far. Every sector of the index reported higher revenue for the second quarter with energy (up 66.4 percent), materials (up 16.1 percent), and real estate (up 14.7 percent) leading the way. The communication services (up 5.8 percent) and financials (up 2.5 percent) sectors lagged.
"Despite worrisome signals from economic proxies like [a big box retailer] and [a shipping and supply chain management company], the earnings season as a whole has turned out to be brighter than expected...That's fueling speculation that Corporate America will be able to weather the perfect storm of hot inflation, jumbo-sized rate hikes and dwindling growth," reported Rita Nazareth of Bloomberg.
While a significant number of companies have yet to report, blended second quarter earnings for companies in the Standard & Poor's 500 index were up 6 percent.
For more information, you can contact Greg Womack at greg@womackadvisers.com or call (405) 340-1717.
Sources:
https://www.bea.gov/sites/default/files/2022-07/gdp2q22_adv.pdf
https://fredblog.stlouisfed.org/2015/08/gdp-components-volatility/#:~:text=The%20four%20components%20of%20GDP,in%20lockstep%20with%20each%20other.
https://fred.stlouisfed.org/series/GDP#0 (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2022/08-01-2022_FRED%20Data_3.pdf)
https://fred.stlouisfed.org/series/DPCERE1Q156NBEA
https://www.barrons.com/articles/q2-gdp-report-numbers-recession-51658959193?mod=hp_columnists (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2022/08-01-2022_Barrons_U.S.%20Economy%20Shrank%20Again.%20Economists%20Arent%20Ready%20to%20Call%20it%20a%20Recession_5.pdf)
https://www.bloomberg.com/opinion/articles/2022-07-27/fed-meeting-are-interest-rates-at-neutral-markets-certainly-hope-so (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2022/08-01-2022_Bloomberg_Are%20Interest%20Rates%20at%20Neutral%3F%20Markets%20Certainly%20Hope%20So_6.pdf)
https://www.bloomberg.com/news/articles/2022-07-29/shock-july-stock-rally-was-a-monster-the-fed-may-regret-seeing (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2022/08-01-2022_Bloomberg_Shock%20July%20Stock%20Rally%20Was%20a%20Monster%20the%20Fed%20May%20Regret%20Seeing_7.pdf)
https://www.investopedia.com/ask/answers/08/earnings-season.asp
https://insight.factset.com/sp-500-earnings-season-update-july-29-2022
https://www.bloomberg.com/news/articles/2022-07-28/us-futures-jump-on-earnings-cooling-fed-hike-bets-markets-wrap (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2022/08-01-2022_Bloomberg_Stocks%20Stage%20Comeback%20with%20Best%20Month%20Since%202020_10.pdf)
https://www.brainyquote.com/authors/ryunosuke-satoro-quotes