Equities Set New Records Ahead of Earnings

 

Earnings recession looms as the US enters reporting season. Banks kick off Q2 corporate earnings season next week, and many analysts are predicting the second straight quarter of year over year declines in earnings. In total, analysts are expecting corporate earnings to have fallen by 2.8% in aggregate, much of that attributable to increases in wages, input costs and dollar strength. Managing the value of the dollar vis a vis other central bank actions is a topic that has garnered much debate on both sides of the aisle- and interest will undoubtedly pick up should management teams blame their underperformance on the strength of the greenback.

 

 

US equities set new records for third day in a row. The S&P 500 and Dow Jones Industrial Average rose 0.5% and 0.9% respectively to set new closing records- albeit on reduced trading volumes. With a number of banks kicking off earning season next week, they will provide the first indications of how falling rates and the inverted yield curve have impacted bank funding costs and net interest margins. The S&P Bank Index traded up 2.97% on the month.

 

 

Producers Price Index beats estimates, confirming the CPI data. The increase in producer’s prices for June comes one day after consumer prices also came in above expectations. Despite this, Treasury yields and swap rates fell slightly on the day- the 10 year Treasury yield closing at 2.12%, albeit up 9 basis points for the week.  This was the largest weekly increase in 10 year yields since March. Fed funds futures still price in 100% likelihood of a rate cut at the July FOMC meeting- and a 19.5% likelihood of a 50 bp rate cut.