JPMorgan, Citigroup, and Wells Fargo will present their second-quarter results between Wednesday and Friday, while the June CPI and unemployment claims will shape the week.
The second-quarter earnings season kicks off this week on Wall Street, with a focus on major banks and inflation. Investors remain cautious after a first half of strong gains in the stock markets, driven by artificial intelligence. The quarterly results will be the first test to justify valuations that are nearing historic highs in the S&P 500.
On Tuesday, the consumer price index (CPI) for June will be published. Forecasts point to a moderation to 3.1% year-on-year, down from 3.3% in May. If the data confirms this trend, it will strengthen expectations that the Federal Reserve will lower rates at its September meeting.
Major US banks test the market
JPMorgan, the largest bank in the United States, usually sets the tone. In the first quarter, it exceeded expectations thanks to trading revenues and investment banking. For the second quarter, analysts anticipate earnings per share of $4.25, a 5% increase from a year ago.
Citigroup, currently undergoing restructuring, may show progress in cost reduction, while Wells Fargo deals with the impact of high rates on its mortgage portfolio. Both stocks have appreciated over 15% so far this year, raising the bar.
S&P 500 futures are trading nearly flat ahead of the results, while the ten-year Treasury bond hovers around 4.20%. The market is pricing in a 62% probability that the Fed will cut rates by a quarter point in September, according to federal funds futures.
The results of the major banks not only reflect the health of the sector: they are the first real thermometer of consumer spending and business investment in the United States.
June inflation: the push the Fed needs?
The June CPI will be published on Tuesday, and the producer price index (PPI) a day later. Both data points are crucial for the Fed to confirm that inflation is steadily heading towards 2%. An unexpected rise could abruptly halt rate cut expectations and punish equities.
Additionally, Thursday's weekly jobless claims will provide a clue about the resilience of the labour market. An unexpected rise would reinforce the argument that the economy is cooling, which would also pressure the Fed to act.
For Spanish investors, the evolution of these indicators is key: a rate cut in the US usually translates into a more favourable environment for European equities and, by extension, for the Ibex 35. However, any disappointment could trigger corrections on both sides of the Atlantic.
Amid rises and cuts: what can investors expect?
Historically, the earnings season tends to be positive for the stock markets, with average returns exceeding 1% during the month of publication, according to Bloomberg data. However, the current context, with rates still high and an economy showing mixed signals, means that any disappointment could amplify declines.
The banking sector is a good barometer. If major banks show strength in investment banking and delinquency remains contained, the market will breathe easier. But an increase in provisions for losses on credit cards or mortgages could trigger massive sell-offs.
As an investor, it is important not to lose sight of the fact that expectations are very high. Analysts' consensus has already revised earnings estimates for the S&P 500 upward by more than 5% since April. Any stumble, no matter how small, could turn the rally around. The week promises to be intense, and as always, the data and results will speak louder than the forecasts.
You may also like
