So far, 71% of the have announced their second quarter results, and revenues are running 3.8% higher than analyst consensus estimates, while earnings are coming in at 7.3% higher than analyst consensus estimates. Fully 77% of the S&P 500 have posted a revenue surprise, while 83% of stocks have posted an earnings surprise. Interestingly, this is also the twelfth quarter in a row where earnings are exceeding sales growth, which is indicative of profit margin expansion.
I expect that August will now be a big rebound month, since between (1) the exhaustion of mean reversion algorithms, (2) the capitulation implosion of the Situational Awareness hedge fund, and (3) nasty, unscrupulous short sellers spreading false narratives, the stock market is now grossly oversold and poised for a big rebound. The fact that FactSet is forecasting 47.4% second quarter earnings growth for the S&P 500 cannot be ignored.
For the third quarter, the is now estimating 5.9% annual growth, which is above the 5% annual pace that I predicted back in December on Fox Business. Before investors get too excited, please be aware that the Atlanta Fed often starts strong (initially at 6.2%) and then revises its estimates lower as the quarter progresses. Second quarter GDP had a substantial headwind from technology imports from Asia, which are expected to remain high due to the AI boom that is underway.
One good sign that GDP growth is accelerating is that the Institute of Supply Management () announced that its manufacturing index surged to 55.6% in July, up from 53.3% in June. The ISM manufacturing index has risen for seven consecutive months and is now at a four-year high (since May 2022). The new orders component rose to 56.7% in July (up from 56% in June), while the production component soared to 58.5% in July (up from 52.2% in June). Also encouraging is the backlog of orders component rose to 55% in July (up from 50.5% in June). Fully, 15 of the 16 manufacturing industries that ISM surveyed reported an expansion in July.
reported on Wednesday that only 44,000 private payroll jobs were created in July, which was well below economists’ consensus estimate of 65,000 jobs. Interestingly, leisure and hospitality lost 11,000 jobs in July, followed by trade, transportation, and utilities, which lost 8,000 jobs. I suspect that seasonal factors adversely impacted the ADP report, but now expectations for Friday’s are expected to be lower.