Earnings season beats expectations

BY Janne Muta

|May 15, 2023

Last week was the second consecutive week of losses for DJ and S&P 500. The primary factors contributing to the market downturn were concerns surrounding regional banks and an increase in consumer inflation expectations, as indicated by University of Michigan survey data. The data revealed a drop in consumer sentiment to a six-month low, accompanied by persistently high inflation expectations. On the bright side, out of nearly 92% of S&P 500 companies that have already reported their results about 78% have surpassed earnings expectations. This is above the long-term average of 73%.

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It has to be noted though that the bar was set pretty low. The initial forecast at the beginning of the year was as low as -7.0%. Now the earnings growth for the quarter is projected to be around -2.5% year-over-year. At the same time, it’s worth noting that this marks the second consecutive quarter of negative earnings growth for the S&P 500, and predictions indicate that the negative trend will continue into the second quarter.

The meeting between the White House and congressional leaders regarding the U.S. debt ceiling has been postponed to this week. According to a report by the Congressional Budget Office (CBO), the government could finance its debt obligations until the end of July with tax revenues and emergency measures, leading to an extended period of uncertainty. It is not unusual for Congress to strike a debt-ceiling deal at the last moment, often involving compromises from both sides. However, investors’ risk appetite is likely to be influenced by economic factors rather than the political stand-offs.

This week, investors will closely monitor the earnings reports of major retailers such as Walmart and Target, as well as the April retail sales data, which will provide valuable insights into the state of the US consumer. Other big events include the Canadian CPI release tomorrow, Australian employment data on Thursday, and the speech of Fed Chair Powell on Friday. Today’s main risk event is the Empire State Manufacturing Index release (-3.7 expected, 10.8 prior).

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DAX is bullish above 15 658 but is trading fairly close to the 16 009 resistance level which could soften the bids due to profit-taking. The market is trending higher and has been relatively strong (vs. DJ and NAS). DAX also created another higher swing low on Thursday which indicates higher prices as long as the 15 658 level isn’t decisively violated.

However, the market is trading near the January 2022 high, making the long trades a bit more riskier. Follow the price action around support and resistance levels to see how the market reacts. This helps you to decide whether you should keep on employing long-only strategies or whether you should start considering shorting the market.

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USDJPY is bullish above 135.47. Above the level, the market probably trades to 136.80 and then possibly to 137.40 on extension. Below 135.47, look for a move to 135.10. Note that there’s some short-term resistance right above the current market price due to a bullish channel top. This could create a retracement lower.

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NATGAS is bullish above 2.246. Above the level, we might see a move to 2.57 and then to 2.80 on extension. Below 2.246, look for a move to 2.18.

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GBPUSD has retraced to a key support level (1.2435). If the market breaks the level decisively, a move to 1.2360 would be likely and then to 1.2250 on extension. Above 1.2435 the market is likely to trade to 1.2550.

The Next Main Risk Events

  • USD Empire State Manufacturing Index
  • AUD Monetary Policy Meeting Minutes
  • GBP Claimant Count Change
  • GBP Average Earnings Index 3m/y
  • EUR German ZEW Economic Sentiment
  • CAD CPI m/m
  • CAD Median CPI y/y
  • CAD Trimmed CPI y/y
  • CAD Common CPI y/y
  • USD Core Retail Sales m/m
  • USD Retail Sales m/m
  • EUR ECB President Lagarde Speaks
  • AUD Wage Price Index q/q
  • GBP BOE Gov Bailey Speaks
  • AUD Employment Change
  • AUD Unemployment Rate
  • NZD Annual Budget Release
  • GBP Monetary Policy Report Hearings
  • USD Unemployment Claims
  • USD Philly Fed Manufacturing Index
  • USD Existing Home Sales
  • CAD BOC Gov Macklem Speaks
  • CAD Core Retail Sales m/m
  • CAD Retail Sales m/m
  • USD Fed Chair Powell Speaks
  • EUR ECB President Lagarde Speaks

For more information and details see the TIOmarkets economic calendar.

Trade Safe!

Janne Muta
Chief Market Analyst

DISCLAIMER: TIOmarkets offers exclusively consultancy-free service. The views expressed in this blog are our opinions only and made available purely for educational and marketing purposes and do NOT constitute advice or investment recommendation (and should not be considered as such) and do not in any way constitute an invitation to acquire any financial instrument or product. TIOmarkets and its affiliates and consultants are not liable for any damages that may be caused by individual comments or statements by TIOmarkets analysis and assumes no liability with respect to the completeness and correctness of the content presented. The investor is solely responsible for the risk of his/her investment decisions. The analyses and comments presented do not include any consideration of your personal investment objectives, financial circumstances, or needs. The content has not been prepared in accordance with any legal requirements for financial analysis and must, therefore, be viewed by the reader as marketing information. TIOmarkets prohibits duplication or publication without explicit approval.

Janne Muta

Janne Muta holds an M.Sc in finance and has over 20 years experience in analysing and trading the financial markets.

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