The earnings season deluge continues with Alphabet, Amazon, Facebook and Microsoft reporting, among many others; however, market watchers will focus equally on the 10-year Treasury yield as it inches closer to 3 percent, Prudential’s Chief Market Strategist Quincy Krosby said Monday in her weekly “Connecting the Dots” outlook.
The big tech names headline a total of 179 companies in the S&P 500 (37 percent of the index) that are due to report earnings this week.
“We know that the bottom line will be good for these companies because they have absorbed the benefits of the tax cuts, but what’s very important is revenue growth, which will paint a picture of demand,” Krosby said. “The market is paying close attention to what these companies are doing with excess capital—share buybacks, sweetening the dividend, hiring people, infrastructure spending—market analysts are looking for the answer to that question.”
$96 billion of two-, five- and seven-year notes will come to market this week. In addition, as the 10-year Treasury yield reached 2.99 percent on Monday morning, there will be a focus on whether 3.00 – 3.05 percent is next, and how the equity market would respond to the move.
“We’re seeing that the prices-paid component of goods and services is moving higher as commodity prices rise, and we’ve heard a parade of Fed officials make it clear that they’ll continue to raise rates,” Krosby said. “Last week’s Beige Book suggested that across the country, business leaders are reporting that prices are rising.”
Trade-related concerns regarding China may have eased somewhat as Secretary of Treasury Steven Mnuchin suggested over the weekend that he may travel to meet with the Chinese for bilateral trade discussions.
“That is good news for the market,” Krosby said, “The headline worries over Chinese–American trade relations may, at least in the short term, be given a reprieve.”
Earnings to watch:
This week’s important data releases:
Monday: Chicago Fed National Activity Index; PMI Composite Flash; Existing Home Sales
Tuesday: Case-Schiller Home Price Index; New Home Sales; Conference Board Consumer Confidence
Thursday: Durable Goods Orders
Friday: GDP report (Q1 first read); Employment Cost Index; Personal Consumption; University of Michigan Consumer Sentiment
Read Quincy Krosby’s full Q2 Market Commentary: Regime Change.
The views and opinions are those of the author at the time of publication and are subject to change at any time due to market or economic conditions. This is solely for informational purposes. This is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.