Volatility, Earnings, and Key Events to Watch This Week

After last week’s quarterly-results megastorm, the second-quarter earnings season is roughly three-quarters of the way through. Despite signs of continued consumer caution and deal-hunting in various sectors, corporate profit growth has not seen a significant pullback. This resilience is reflected in the S&P 500 Index, where companies collectively reported an 11.5% per-share profit gain for the second quarter compared to the same period last year, according to a FactSet report. If this gain holds, it will be the largest increase since the fourth quarter of 2021.

In late 2021, the economy’s reopening scrambled the job market and supply chains, pushing up prices and profits. However, through 2022 and 2023, as geopolitical tensions rose and economic conditions fluctuated, suspicions grew that companies were maintaining high prices because they could. Each company’s profit trajectory has its unique context, influenced by factors such as year-over-year comparisons and the performance of major tech companies like Nvidia Corp., which still has earnings due this month.

Despite consumer reservations, many companies have managed to cut costs and staff to strengthen their bottom line and appease stockholders. This strategic realignment has helped maintain profit growth even in uncertain times.

This Week in Earnings

This week, 79 S&P 500 companies, including three Dow 30 members, are set to report quarterly results. Some notable earnings include:

• Rivian Automotive Inc. and Nikola Corp.: These electric-vehicle makers will report following weaker EV demand, increased competition, and disappointing results from Tesla Inc.
• CSX Corp.: The railroad operator will report as the shipping industry attempts to tighten operations amid sluggish freight trends.
• Robinhood Markets Inc.: The trading app will release earnings amid growing market momentum and the increasing influence of the crypto lobby.
• Under Armour Inc.: The athleisure giant’s report will be scrutinized to see if the return of its founder to the helm can unlock bigger gains, despite weak clothing demand and shifts away from slimmer fits.
• CVS Health Corp.: The drugstore chain will release earnings as it navigates industry retrenchment.
• Other notable reports: Tyson Foods Inc., Palantir Technologies Inc., Molson Coors Beverage Co., Caterpillar Inc., and Airbnb Inc.

Key Earnings Calls to Watch

Gig-Economy Platforms

• Uber Technologies Inc. and Instacart (Maplebear Inc.): Reporting on Tuesday, these companies will provide insights into the gig economy following California’s Supreme Court decision allowing ride and delivery platforms to classify drivers as independent contractors. Analysts are concerned about weaker restaurant demand and higher ordering-out prices affecting Uber’s Uber Eats segment, while grocery prices, less severely affected, could bode well for Instacart.
• Lyft Inc.: Reporting on Wednesday, Lyft’s results will be compared to Uber’s, especially regarding consumer perceptions of lower prices and the potential rise of robotaxis.

Streaming Figures

• Walt Disney Co.: Reporting on Wednesday, Disney’s streaming business, which has been narrowing losses, will be under the microscope. Despite challenges, some analysts have crowned Netflix Inc. as the winner of the streaming wars. Disney’s traditional TV networks are struggling with revenue amid a slow exodus from cable, and the company is banking on recognizable sequels and reboots to shore up its streaming platforms.
• Warner Bros. Discovery and Paramount Global: Both companies will report this week, following Paramount’s merger deal with Skydance Media.

Federal Reserve’s Rate Decision and Market Reaction

The Federal Reserve held interest rates steady at its latest meeting but hinted at potential rate cuts in September. Initially, this news was met positively by the market. However, optimism faded, leading to a sell-off by the end of the week, with the S&P 500 ($SPX) and SPDR S&P 500 ETF (SPY) closing down over 2%.

5 Key Market Events to Watch This Week

1. Earnings Reports

While the pace of earnings reports will slow compared to the previous week, several major companies will still release their results:

• Caterpillar (CAT): Reporting on Tuesday, Caterpillar’s results will provide insights into the construction and mining sectors.
• Disney (DIS), CVS (CVS), and Shopify (SHOP): Reporting on Wednesday, these companies will offer a gauge of consumer strength. Any guidance lower due to weakening spending could indicate a looming recession.

2. ISM Services PMI

On Monday, the ISM services PMI will be released, measuring expansion or contraction in the services sector. This index often causes significant market volatility. A weaker-than-expected result could continue last week’s sell-off, while a stronger-than-expected result could trigger a market rally.

3. Bond Auctions

Several bond auctions are scheduled, with the 10-year and 30-year auctions on Wednesday and Thursday being particularly important. These auctions influence the calculation of the Risk-Free Rate and are considered safe havens for capital. The strength or weakness of these auctions will provide insights into larger players’ views on U.S. market risks in the coming months, potentially impacting the equities market.

4. Unemployment Claims

Last week’s Non-Farm Payroll report was significantly weaker than expected, with a sharp increase in people holding multiple jobs. This trend may continue in this week’s unemployment reports. A higher-than-expected report could lead to a market sell-off, while a better-than-expected report might boost the market.

5. Geopolitical Tensions

Geopolitical issues are back in the news, particularly in the Middle East. The U.S. has increased its military presence as tensions escalate between Israel, Hamas, and Iran. The ongoing conflict in Ukraine also demands substantial U.S. support. Any major developments in these areas could cause market turmoil.

Conclusion

This week, the market faces a quieter period in terms of news and earnings, but the context and reactions to new information will be critical. Investors should remain vigilant, considering the potential for continued volatility and the broader economic implications of upcoming reports and geopolitical events. As always, staying informed and adaptable is key to navigating the complexities of the market.