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Analysts believe the second-quarter earnings season will continue to drive the markets higher, however, a major focus will be on the fiscal policy updates released by the Federal Reserve.
The week started on a pretty good note as the earnings season optimism drew Wall Street higher. On Monday, July 12, all the US stock indices closed in green with the Dow Jones Industrial Average (INDEXDJX: .DJI) shooting 126 points closing just under 35,000 levels.
Just like Dow, the S&P 500 (INDEXSP: .INX) also surged 0.4% giving a record close at 4,384 levels. With Monday’s gains, the S&P 500 gains for 2021 so far have extended to 16%. At the same time, the tech-heavy Nasdaq Composite (INDEXNASDAQ: .IXIC) closed 0.21% higher at 14,733 levels.
Wall Street Expects for Earnings
Before the start of the second-quarter earnings report, investors are on a cautious optimism. Later today, July 13, banking giants Goldman Sachs and JPMorgan will be the first to report their results. Jack Ablin, chief investment officer at Cresset Wealth Advisors told CNBC:
“Most investors are expecting blockbuster earnings results and these will likely be peak earnings results. The most important element of these reports this week will be the outlook discussion from management and not necessarily the numbers of the last three months.”
Compared to a year ago, when the first wave of the COVID-19 pandemic was at its peak, the Q2 2021 earnings will of course be strong. As per FactSet, the second-quarter earnings will be more than 64% than a year ago. If companies actually deliver these results, it will be the largest ever growth rate since the last quarter of 2009 when the global markets were recovering from the 2008 Great Financial Crisis.
On Monday, tech stocks continue to lead the rally with Tesla Inc (NASDAQ: TSLA) and Nvidia Corporation (NASDAQ: NVDA) closing in the green. But stocks linked to the economic comeback still remained in the weak zone.
Fed’s Fiscal Policy Updates
Apart from just second-quarter earnings, investors will be looking forward to crucial data like inflation released on Tuesday and Wednesday. Ahead this week on Friday, data for the June retail sales shall also be available. On Wednesday and Thursday, Federal Reserve chief Jerome Powell will testify before Congress. CNBC contributor Peter Boockvar said:
“While earnings of course are going to be important, most of the earnings really don’t come out until next week and the week after. So while we’ll focus on what the banks have to say…right now, it’s all about CPI tomorrow, it’s all about what Powell says and if he hints to the taper sooner rather than later.”
However, the earnings season could still continue to be the driver in the coming weeks. Until now, 66 S&P 500 companies have issued positive guidance for the second-quarter reports. Moreover, 11 major sectors across the market are set to report positive growth. Sectors like industrials, energy, financials, consumer discretionary, and materials will see the biggest gains as the economy reopens.
“Continued earnings momentum should refuel investors’ confidence in the recovery amid slowdown concerns and drive a rotation back into Value,” said Bank of America’s Savita Subramanian.