One-Third of S&P 500 Firms on Deck This Week, Including Apple and Amazon

Crude is up 15% this month, raising possible inflation worries.

Eye on the Fed

Futures trading indicates a 19% probability that the FOMC will raise rates at its September meeting, according to the CME FedWatch Tool. The probability for November is 28%.

Stocks in Spotlight

Earnings stable: We’re about halfway through Q2 earnings season, and 80% of companies reporting to date delivered better-than-expected earnings per share (EPS), according to FactSet. About 64% reported a positive revenue surprise. Analysts still expect a 7.3% decline in Q2 year-over-year earnings, but that’s better than the –9% they expected a week ago, per FactSet. To date, average EPS is up 3% from the same quarter a year ago.

Results last week were mixed: Coca-Cola (NYSE:), Alphabet and Meta rallied as investors responded to quarterly numbers, but Microsoft (NASDAQ:), ExxonMobil (NYSE:) and Chevron (NYSE:) shares lost ground after those companies reported.

House call: Pfizer and Merck will report on Tuesday. The health care sector has been choppy lately—it’s one of only three SPX sectors that is lower for the year. This partially reflects its “defensive” profile, which means it often lags other sectors during growth-propelled market rallies. Pfizer and Merck haven’t escaped recent sector sluggishness.

Pfizer battles tough year-over-year comparisons from declining COVID-19 vaccine demand and spent recently on acquisitions to refill its drug-development pipeline, Barron’s reported. Analysts expect Pfizer’s Q2 earnings and revenue to drop from a year ago, and the company faces an additional challenge after a tornado tore through a Pfizer hospital supply plant earlier this month.

Merck also has tough comparisons after a major Q1 sales decline for its COVID-19 antiviral. Last time out, however, Merck raised full-year earnings guidance. As with Pfizer, analysts expect sharp declines in Merck’s year-over-year earnings and revenue in Tuesday’s quarterly report.

We’ll preview Advanced Micro Devices tomorrow morning before its Tuesday afternoon earnings report.

What to Watch

Though Friday’s jobs report is head and shoulders above all other data this week, there are some nearer-term numbers worth watching.

Manufacturing struggles: Today’s July Chicago Purchasing Managers’ Index (PMI) report is due out soon after the open, and it’s really been dragging lately. The June reading of 41.5 for the index tracking Chicago-area manufacturing sector health rose mildly from May but missed analysts’ expectations of 44.0. Consensus for July is also 44.0, according to Trading Economics. Anything below 50 indicates contraction.

The same goes for Tuesday’s July ISM Manufacturing Index. It’s been in contraction, and analysts expect it to remain that way with a consensus of 46.8, up from 46 in June. The U.S. manufacturing economy has struggled following a pandemic-related surge in goods purchases, which may have pulled consumer demand forward to some extent.

Consumer demand is something the Chinese government apparently wants to stimulate, and it recently took some measures in that regard. It’s almost certainly too soon to see an impact, but this morning investors got a look at official NBS Manufacturing PMI. It rose to 49.3 in July from 49 in June but remained in contraction for the fourth month in a row. Stay tuned tomorrow morning, China time, for the Caixin Manufacturing PMI, which clawed into expansion territory last time out.

Tomorrow morning also brings June Job Openings and Labor Turnover Survey (JOLTS). Fed Chairman Jerome Powell referred to this report at his post-FOMC meeting press conference last week when he said the workers-to-jobs gap has narrowed but labor demand still “substantially exceeds” the supply of available workers. That’s often a recipe for higher wages that can stir inflation.

Not much change is expected in June from May’s 9.824 million, with consensus at 9.63 million. That’s historically high but down from above 10 million earlier this year.

Talking technicals: The SPX ran into resistance on a test of 4,600 last week, and that could remain a key level to watch.

CHART OF THE DAY: CLOSING THE GAP. While the information technology sector (IXT—candlesticks) leaped to a big lead against industrials (IXI—purple line), financials (IXM—blue line), and materials (IXB—pink line) earlier this summer, this three-month chart shows cyclical sectors gaining ground on tech even as the tech rally flattens slightly. Data source: S&P Dow Jones Indices. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

Thinking cap

Ideas to mull as you trade or invest

We don’t need no education: August begins tomorrow, meaning back-to-school time for many youngsters despite their protests. This is an important period for big retailers, though slightly less than in the past due to Amazon’s July “Prime Day” promotion. Even so, August is when many stores hope to rake in revenue as parents stock up on clothing, books, laptop computers, and other technology for their kids. This year, there’s debate over how strong the season might be. Deloitte sees back-to-school spending falling for the first time in nine years, Reuters recently reported. Consumers are expected to spend $31.2 billion, down from $34.2 billion last year, Deloitte said, with spending on apparel and technology seen falling 14% and 13%, respectively. But the National Retail Federation (NRF) predicts customers will spend 12.5% more this year on back-to-school items, according to Reuters, driven partially by inflation’s impact on electronics prices.