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Romain Fournier

Chief Editor
Having worked in the British, French and Swiss financial press, Romain is able to report on local and international issues, as comfortable in French as in the language of Shakespeare, Romain Fournier leads the editorial team at Marketscreener. Fine connoisseur of the English-speaking markets, Romain delivers an editorial every day on US and UK markets.

Earnings bonanza

07/26/2022 | 08:58am EDT
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Corporate earnings are piling up on Wall Street. This is the tradition at the end of July: all results must be published before the August torpor. Microsoft and Alphabet are due to release theirs today.

There is a lot going on in the minds of investors at the moment, especially because they are hoping that the upturn in equities is the beginning of something, and not just another fluke. Since the start of the year, there have already been three "bear market bounces": at the end of January, mid-March and mid-May. The current one started in mid-June, but it had a few bumps in the road, so it wasn't until July that we saw a slightly less bumpy uptrend. However, the first session of the week was marred by wait-and-see attitude, with small index spreads. The upside dominated, but the Nasdaq lost some of the ground it has gained over the past fortnight, having already dented its capital on Friday.

"The only time we've seen this level of pessimism and not made money by being contrarian over the long term was Lehman," Bank of America reminds us. I quote them regularly because its strategists have had a nose for the global stock market backdrop in recent months. By invoking the ghost of the Lehman brothers, the bank is saying that, assuming that investor sentiment is a relatively reliable data point, there are opportunities to be seized over the long term. Moreover, it continues, there is a form of normalization after the frenzy. Again, I quote BofA: "the consensus was very slow to assess the inflation shock and the rate shock, but it was very quick to assess the recession shock". In short, the market seems to be doing its job better after keeping its blinders on for a while. There are still plenty of ups and downs, after all this is economics, but the areas of exuberance have been shaved off. One last comment from BofA: "Wall Street will unwind the financial excesses of the last 13 years with a 6-month bear market".

We’ll soon find out if this prediction comes true. In the meantime, are quite a few earnings releases today, including Microsoft and Alphabet, which together weigh $3,350 billion. That reminds us that despite the corrections suffered by the American technology sector since the beginning of the year, its domination of the stock market has not weakened much.

In fact, investors have regained some taste for risk, as evidenced by their summer bets on technology and consumer discretionary. But they are keeping their foot on the brake after having been scalded by several unsuccessful rebound phases since the beginning of the year. The looming Fed meeting on Wednesday and the pile of companies revising their targets downwards are not pushing them to take more bold bets.

Yesterday, two companies directly tied to consumer spending were forced to revise their guidance downward. U.S. retail giant Walmart cut its forecast for the second time this year - arguing that rising food and gas prices are forcing the group to run promotions on the rest of its products. Home appliance manufacturer Whirlpool also toned down its expectations, but on the back of rather resilient second-quarter results, which earned it a good out-of-session performance while Walmart tumbled 10%.

On the commodities front, oil rebounded strongly as Russia continues to play on Europe's nerves with the flow of the Nord Stream gas pipeline.

U.S. indexes opened in the red this morning, as Walmart's profit warning strengthened fears of recession. Inflation and the stronger dollar are expected to put pressure on the earnings of companies that do a significant chunk of their business abroad.

However, Coca-Cola gained 1% after the company raised its full-year revenue forecast, while McDonald's comparable sales topped expectations.

 

Today's economic highlights:

Today, we have the FHFA house prices at 9:00 am and new home sales at 10:00am, the Richmond Fed manufacturing index and the Conference Board consumer confidence index also at 10.00 am.

The dollar is trading at EUR 0.9883. The ounce of gold is stagnating at USD 1717. Oil rebounds, with North Sea Brent at USD 106.85 per barrel and US WTI light crude at USD 98.53. US 10-year debt yields 2.79%, still below the 5-year, 2-year and 6-month. Bitcoin is trading at USD 21,100.

 

On markets:

* Walmart on Monday lowered its annual and quarterly profit targets as soaring food and fuel prices curbed customer spending. The retail group was down 10% in after-hours trading. 

* 3M Company announced during the publication of its results its intention to spin off its healthcare business in which it would retain a 19.9% stake. It gained 2.4% in pre-market trading.

* General Motors confirmed its annual profit target but said it was preparing for a possible slowdown by limiting spending and hiring. The stock was down 1.3% in premarket trading.

* Coca-Cola on Tuesday raised its full-year sales forecast as demand remained strong despite price increases to soften the impact of rising costs for key inputs such as corn syrup and aluminum cans.

* McDonald's reported better-than-expected quarterly like-for-like sales, driven by strong online demand, new product introductions and higher pricing.

* General Electric reduced its free cash flow forecast for the full year due to inflationary pressure and global supply chain disruptions. The conglomerate was down 2.3% in pre-market trading.

* Amazon will raise fees for its Prime delivery and streaming service in Europe by up to 43% a year as the online retailer seeks to counter rising costs days before it reports quarterly financial results.

* UPS reported higher adjusted quarterly profit on Tuesday, as particularly profitable deliveries offset a drop in volumes related to online shopping. However, the stock is down 1.1% in premarket trading.

* Chinese online trading giant Alibaba announced Tuesday it plans to make the Hong Kong stock exchange its main listing in addition to Wall Street, becoming the first major company to take advantage of a regulatory change in the Asian financial center aimed at attracting technology groups. In pre-market trading, the group's stock was up 4.6%.

* Global appliance specialist Whirlpool lowered its annual profit outlook after reporting a 4.3% drop in revenue to $5.10 billion, below expectations, due to supply chain disruptions and slowing demand.

* Universal Health Services - The hospital operator's second-quarter profit nearly halved to $164.1 million due to higher labor costs.

 

Analyst recommendations:

  • American Express: Morgan Stanley raised the target to $155 from $143. Maintains equal-weight rating.
  • AutoNation: Seaport Global Securities upgrades to buy from neutral. PT up 54% and set to $180.
  • Discover Financial Services: BMO Capital adjusts price target to $118 from $131. Maintains market perform rating.
  • EOG Resources: Goldman Sachs maintains neutral rating. PT upgrades to $124 from $122.
  • Haleon: Jefferies & Co initiates coverage with hold rating.
  • HCA Healthcare: Credit Suisse raised the target to $250 from $230. Maintains outperform rating.
  • Microsoft: Rosenblatt Securitie adjusts price target to $330 from $349. Maintains buy rating.
  • MicroStrategy: Jefferies cut the recommendation to underperform from hold. PT down 32% to $180.
  • Intuitive Surgical: Goldman Sachs adjusts price target to $273 from $319. Maintains buy rating.
  • Lam Research: Barclays cut the recommendation to equal-weight from overweight. PT down 3% to $450.
  • Playtech: Investec raised the recommendation to buy from hold. PT up 18% to 560 pence.
  • SVB Financial Group: D.A. Davidson & Co cut the target to $400 from $450. Maintains neutral rating
  • Tenet Healthcare: Citi cut the target to $99 from $110. Maintains buy rating.
  • Twilio: Macquarie downgrades to neutral from outperform and PT set to $96.
  • UnitedHealth Group: Argus research maintains buy rating. PT up 25% to $650.
  • Abbott Laboratories: Goldman Sachs lowers price target to $104 from $111. Maintains sell rating.

© MarketScreener.com 2022
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Stocks mentioned in the article
ChangeLast1st jan.
3M COMPANY -3.52% 111.12 Delayed Quote.-37.44%
ABBOTT LABORATORIES -0.90% 102.45 Delayed Quote.-27.21%
ALIBABA GROUP HOLDING LIMITED -0.08% 84.32 Delayed Quote.-28.96%
ALPHABET INC. -0.01% 101.42 Delayed Quote.-29.98%
AMAZON.COM, INC. -0.54% 120.3 Delayed Quote.-27.84%
AMERICAN EXPRESS COMPANY -1.38% 142.38 Delayed Quote.-11.75%
AUTONATION, INC. -3.73% 101.03 Delayed Quote.-13.54%
COCA-COLA EUROPACIFIC PARTNERS PLC -0.90% 46.16 Real-time Quote.-5.95%
DISCOVER FINANCIAL SERVICES -1.41% 95.32 Delayed Quote.-17.51%
EOG RESOURCES, INC. 1.15% 127.53 Delayed Quote.43.57%
GENERAL ELECTRIC COMPANY -1.81% 66.22 Delayed Quote.-28.61%
GENERAL MOTORS COMPANY -0.60% 34.63 Delayed Quote.-40.58%
HALEON PLC 2.05% 284.15 Delayed Quote.0.00%
HCA HEALTHCARE, INC. -0.50% 201.53 Delayed Quote.-21.56%
INTUITIVE SURGICAL, INC. -1.83% 197.7 Delayed Quote.-44.98%
LAM RESEARCH CORPORATION -0.58% 397.6 Delayed Quote.-44.71%
MCDONALD'S CORPORATION -1.82% 234.75 Delayed Quote.-12.43%
MICROSOFT CORPORATION -0.97% 246.79 Delayed Quote.-25.90%
MICROSTRATEGY INCORPORATED -0.21% 241.67 Delayed Quote.-55.52%
PLAYTECH PLC 1.85% 472.8 Delayed Quote.-35.45%
SVB FINANCIAL GROUP -2.07% 356.57 Delayed Quote.-47.43%
TENET HEALTHCARE CORPORATION -2.42% 55.24 Delayed Quote.-30.70%
TWILIO INC. 2.33% 78.03 Delayed Quote.-70.37%
UNITEDHEALTH GROUP -1.51% 519.13 Delayed Quote.4.96%
UNIVERSAL HEALTH SERVICES, INC. -1.50% 93.29 Delayed Quote.-28.05%
UPSTART HOLDINGS, INC. 3.86% 22.58 Delayed Quote.-85.63%
WALMART INC. -0.93% 131.68 Delayed Quote.-8.13%
WHIRLPOOL -1.06% 142.91 Delayed Quote.-38.45%
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