With 93% of the S&P 500 announcing their second-quarter earnings so far, 79% of all companies have reported positive earnings surprises and 60% have reported positive sales surprises. For all 465 (93%) companies, the blended year-over-year earnings growth rate is 10.9%, the highest growth rate (if it holds) since the final quarter of 2021. Nvidia will be the grand finale of the earnings reporting season on August 28.
Despite a manufacturing recession over the past 21 months, the booming service sector and rising energy exports continue to fuel U.S. GDP growth. The Presidential election cycle is now in full force, as Kamala Harris and the Democrats meet this week. So far, she has followed Donald Trump by promising “no taxes on tips.” She has not yet followed Trump by promising no taxes on Social Security benefits, but don’t be surprised if she comes up with some new benefits during her speech in Chicago later this week.
As a result, the first Presidential debate on September 10th is shaping up to be a big deal, and consumer confidence is expected to rise as the Presidential candidates keep promising us anything and everything.
Here are the most important market news items and what this news means:
- The Democratic National Convention (DNC) and the Kansas City Fed’s annual retreat in Jackson Hole will dominate the news this week. It will be interesting if the Palestine protestors will disrupt the DNC, but the official protests have been removed offsite, so the protestors risk being arrested if they approach the DNC convention. Fed Chairman Jerome Powell will be talking about the economic outlook on Friday and other central bankers’ guidance are expected to be the big stories at Jackson Hole.
- One statistic “glitch” that will be announced on Wednesday by the Labor Department is that up to 1 million payroll jobs are expected to disappear due to a “revision” due largely to people working multiple jobs. Specifically, Goldman Sachs is expecting a downward revision of 600,000, while JP Morgan is expecting a 360,000 downward revision. Obviously, this downward payroll revision may cause the unemployment rate to rise, which would be embarrassing during the DNC. The other embarrassing economic tidbit is that the Atlanta Fed this week revised its third quarter GDP revision to a 2% annual pace, down from its previous estimate of a 2.4% annual pace.
- Crude oil prices remain high due to Russia’s woes following the Ukrainian incursion into Russia’s Kursk region, plus the potential of an escalation in the Middle East, especially if Iran retaliates against Israel for killing the Hamas leader in Tehran. I should add that Russia’s crude oil exports have declined 13% since April. Specifically, in the latest week, Russia’s crude oil shipments declined by 360,000 barrels per day to 2.93 million barrels per day.
- Amidst all this chaos, gold prices have risen 20% so far this year and hit $2,500 per ounce last week and may continue to steadily rise as uncertainty and a lack of confidence in central banks persist. This is a good time that you can buy gold coins and bars at Costco, but they quickly sell out. Currently, American Eagle gold coins are available at Costco.
- Kamala Harris may reveal more details at the DNC on her campaign against food “price gouging.” Last week, the Harris campaign said she “will include “the first-ever federal ban on price gouging on food and groceries — setting clear rules of the road to make clear that big corporations can’t unfairly exploit consumers to run up excessive corporate profits on food and groceries.” There is a big problem emerging already, namely that large food producers, like Hormel and Tyson Foods, rely on immigrant labor and actively help their immigrant workers achieve legal status in America. In other words, some of the biggest beneficiaries of the Biden Administration’s open border policies are the major food processors that are actively facilitating immigration applications for green cards. So essentially, the Harris campaign is threatening food companies that actively help immigrants achieve legal status. As a result, I suspect that the Harris campaign’s threat to punish major food companies will fizzle since those food companies are actively helping to assimilate new immigrants into the U.S. and achieve legal status.
- An interesting case study of what happens when a government runs too big of a budget deficit is now unfolding in Brazil. Lulu da Silva has been President for almost two years and the Brazilian real remains weak in the wake of one of the largest budget deficits in the world at 10% of GDP. Lulu’s administration has not been able to reel in its spending, so Brazil may have to follow Argentina and devalue its currency in the upcoming years. In the meantime, the Brazilian central bank is still raising interest rates to defend the real, so key interest rates are now forecasted to rise to 10.5%.
Overall, Nvidia’s earnings on August 28th are expected to be the grand finale for the second quarter earnings announcement season. The analyst community is forecasting that Nvidia’s earnings will rise 156% to 64 cents per share. In the past week, the analyst community has revised their consensus earnings estimate up 10.3%. Typically, positive analyst earnings revisions precede future earnings surprises. The truth of the matter is that Nvidia is the market leader and the primary reason that the stock market has rebounded impressively since the Japanese carry trade selloff that spooked many investors.
