Market/Earnings Look – Monday Morning Market Memo – July 19, 2021

Market/Earnings Look – Monday Morning Market Memo – July 19, 2021

Good morning,

The major stock market indices all finished in negative territory last week, snapping their three-week winning streak.  The Dow Jones Industrial Average dipped .5% to 34,687.85 – the NASDAQ Composite shed 1.9% to 14,427.24 – and the Standard & Poor’s 500 Index fell 1% to 4,327.16.

Factors weighing on stock prices included worries about inflation (with consumer prices up 5.4% last month), profit-taking from recent record highs, and a fall in consumer sentiment.  The University of Michigan’s preliminary sentiment index fell to 80.8 in July, below expectations for an increase to about the 86 level.  These negatives overtook positive news items last week, such as an unexpected rebound in U.S. retail sales (retail sales rose .6% last month, versus expectations for a decline of .4%) and a kickoff to earnings season which began with a handful of better-than-expected results.

Earnings action last week was dominated by the big banks, with Bank of AmericaJPMorgan ChaseGoldman Sachs and Wells Fargo all reporting earnings that came in above street estimates.  Despite these beats, the financial sector finished lower last week as many investors took profits and followed the adage “buy the rumor, sell the news.”

Earnings action really ramps up in the week ahead.  Companies reporting this week include International Business MachinesChipotle Mexican GrillIntuitive SurgicalNetflixCoca-ColaHarley-DavidsonDomino’s Pizza, IntelAT&TJohnson & JohnsonVerizon CommunicationsAmerican ExpressHoneywell International, and Kimberly-Clark.

Looking at aggregate earnings expectations: According to data from FactSet – for the second quarter of 2021, earnings for the S&P 500 are expected to grow by 69.3%, if 69.3% is the actual growth rate for the quarter, it would mark the highest year-over-year earnings growth rate reported by the index since the fourth quarter of 2009.

The market is clearly expecting strong earnings results with the bar set high.  Also the major stock market indices are relatively close to record highs, meaning in part that a lot of good earnings news is already “priced-into” the stock market.  We’ll be watching the market reactions to company earnings reports – it is likely to be more interesting than usual.  Bottom line, get ready for the upcoming heart of earnings season!

All the best – Southport Station Financial Management, LLC