Earnings season is off to a very good start. The major banks such as Goldman Sachs (GS), JPMorgan Chase (JPM), and Citigroup (C) all beat. IBM, on the other hand, missed because they are losing market share to data centers.
The analyst community is expecting the ’s second quarter earnings to rise 22%, but due to wave after wave of positive analyst earnings revisions, expectations are high for much stronger underlying earnings. Typically, positive analyst earnings revisions precede earnings surprises.
Energy-related stocks are forecasted to post the strongest earnings, followed by information technology and semiconductors, then material stocks. Only these three of the 11 S&P 500 sectors are forecasted to post stronger second quarter earnings than the overall S&P 500, so we still remain in a relatively narrow stock market environment. A good omen is that WD-40 surged in the wake of a 43.1% earnings surprise, so good earnings announcements are clearly being rewarded.
Another great omen is that Taiwan Semiconductor Manufacturing () announced that its June sales soared 67.9% in June to a record $13.99 billion. TSM’s June sales rose 6.2% compared to May and were 1.1% higher than analysts’ consensus expectation. These strong sales for TSM bode well that the AI-related stocks, like semiconductors are now more likely to continue to post sales and earnings in excess of analyst estimates.
Naturally, the AI-related stocks and data center stocks are also expected to post strong guidance, especially pertaining to their order backlogs. TSM will announce its second quarter results on Thursday. The analyst community is expecting 35% annual sales growth and 48% earnings growth, but due to TSM’s accelerating sales, I am expecting the company to post better-than-expected sales and earnings.
There is no more talk about the Fed raising key interest rates in the wake of the report. The June Consumer Price Index (CPI) came in better than economists expected and posted a 0.4% decline, which is the first time the CPI declined since 2020. Excluding food and energy, the was unchanged but was well below economists’ expectations for a 0.2% increase. Although food prices rose 0.2% in June, energy prices declined, led by a 9.7% drop in gasoline prices. Owners’ equivalent rent (shelter costs), rose 0.2% in June, which was substantially lower than in previous months.
Next up will be the Producer Price Index () on Wednesday. Economists are expecting the overall PPI to decline 0.2% in June, so it is widely expected that inflation will also be cooling on the wholesale level.