CWS Market Review – July 23, 2024

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Q2 Earnings Season Is Looking Good

The stock market fell again today. The S&P 500 has now had four losing sessions in the last five days. Last week was the second-worst week for the S&P 500 this year. To be honest, we really haven’t had many bad weeks for several months.

Today’s market was a replay of a familiar theme. The broader market, including tech stocks, was down while the small-caps were up. For the day, the Nasdaq closed down a little bit, just 0.06%, and the Russell 2000 was up 1.18%.

We’re getting into the thick of Q2 earnings season. It’s still early. Overall, about 20% of the S&P 500 has reported so far but it’s looking good. On our Buy List, we’ve already had an earnings beat from Abbott Labs. Moody’s had a very nice beat and raised guidance. Polaris, however, missed and lowered guidance.

So far, the S&P 500’s earnings are on track to grow by 9.40% for Q2. That’s a decent number. It’s up from expectations of 8.63% one month ago. As we know, Wall Street likes to put a lid on expectations so they can later claim that they’re exceeding them. As has been said before, Wall Street is a game of expecting expectations.

Of the companies that have reported so far, 87.1% have beaten on earnings and 60.0% have beaten on sales. Of that, 55.7% have beaten on both earnings and sales. These numbers will probably trend lower as more earnings reports come out.

The big winners are financials. We saw some strong results from many large banks. Last month, Wall Street was expecting earnings growth of 4.55% from financials. Now the growth rate is trending at 13.89%. Energy is the big loser. In June, analysts were expecting growth of 12.62%. Now earnings growth for energy is tracking at -1.49%. It’s hard to make money in energy when oil fell from around $87 per barrel in April to $72 by June.

These are the early numbers. We still have the Magnificent Seven to report. In fact, Tesla and Google are due to report on Tuesday after the close. Wall Street expects collective growth from the Mag 7 of 30%.

Wall Street expects Google to report quarterly revenues of $84.21 billion. That’s up from $74.6 billion last year. For earnings, analysts are looking for adjusted earnings of $1.85 per share.

For Tesla, Wall Street is looking for earnings of 62 cents per share. That’s down from 91 cents for last year’s Q2. The stock is going for nearly 100 times this year’s earnings.

Barclays Raises Its S&P 500 Target to 5,600

Bloomberg points out that since 1928, the S&P 500 has gained an average of 5.2% during the third quarter of election years.

I usually don’t pay too much attention to price targets from Wall Street firms, but I noticed that Barclays today raised its 2024 price target on the S&P 500 from 5,300 to 5,600. Citigroup and Goldman Sachs had previously raised their price targets. Barclays had already raised its price target earlier this year.

I think these increases are noteworthy as they show confidence that the market’s strong performance during the first half of this year wasn’t an outlier. If the Fed soon starts lowering interest rates, that will help elevate valuation levels. Barclays also raised its earnings forecast for this year from $235 per share to $241 per share. If that’s right, then the market is going for 24 times earnings. That ain’t cheap.

Shares of UPS fell after it reported a disappointing earnings report. The company also cut its revenue guidance from $94.5 billion to $93 billion. The stock may be heading for its worst day ever.

Coca-Cola had a good earnings report. The soda company earned 84 cents per share which was a three-cent beat. Revenue came in at $12.36 billion compared with estimates of $11.76 billion. Coke now expects organic revenue growth of 9% to 10% this year. That’s up from the previous range of 8% to 9%.

We’re also witnessing lower home sales but at higher prices. On Tuesday, the National Association of Realtors said that existing home sales fell to 3.89 million for June (that’s seasonally adjusted and annualized). Sales are down 5.4% from last year. This was the 34th month in a row of declining year-over-year sales.

Even though sales were down last month, prices are still going up. The median sales price for June reached $426,900. That’s up 4.1% from last year and a new all-time high.

Lower sales and higher prices aren’t the contradiction they may seem. Perhaps higher rates have crowded out all buyers except those who aren’t so price sensitive (e.g. rich folks).

Wiz Walks Away From $23 Billion

Have you ever turned down $23 billion? I can’t say I have, but that’s what Israeli cybersecurity startup Wiz did.

Google had been talking with Wiz about a possible acquisition. The number that was apparently on the table was $23 billion. This would have been Google’s largest deal ever. Wiz said, no thanks.

The company said it’s now going to focus on an initial public offering. CEO Assaf Rappaport said, “Saying no to such humbling offers is tough, but with our exceptional team, I feel confident in making that choice.”

The details about this deal have been hush-hush. Neither company admitted they were in talks with each other. Earlier this year, Wiz raised $1 billion from venture capital. That deal valued Wiz at $12 billion.

I have to confess to having some sympathy with Wiz in this matter. I completely understand why a company would prefer to keep its independence rather than being a shiny cog in a very large machine. Also, getting a deal together can take a long time, plus there are tons of regulatory issues.

There’s enormous growth potential in this market. Two years ago, Wiz said it generated $100 million in annual revenue. The company says that’s now up to $350 million.

Google has been working hard in recent years to boost its cybersecurity presence. I think we’ll see more deals in the future.

Outside of earnings, there are some economic reports coming later this week. On Thursday, the government will release its first estimate for Q2 GDP growth. The economy grew at a real annualized rate of 1.4% for Q1. Economists expect growth of 1.9% for Q2. I suspect that might be too high, but we’ll see. Wall Street expects something close to the mid-2% level. The Atlanta Fed’s GDPNow model expects GDP growth of 2.7%.

On Friday, we’ll get a look at the PCE price data for June. The expectations are that core and headline PCE will have increased by 0.1%. The Federal Reserve meets again next week, and it’s nearly universally believed that the Fed will leave rates alone one more time.

That’s all for now. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

Posted by on July 23rd, 2024 at 6:17 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.