Welcome to August folks! Fun fact: this month usually ties June as the worst for the market with historical returns averaging just -0.13bps for US equities; let's see if stocks will appreciate over the remainder of this Q2 reporting period on some earnings beats and positive economic updates (such as this Friday’s jobs report) that will disprove the recession thesis everyone seems to have nowadays. Keep reading for your daily source of market inspiration!
“It is much easier to put existing resources to better use, than to develop resources where they do not exist.”
- George Soros
We have a special week on our hands with a diversified group of companies from tech to energy names reporting quarterlies and a slew of employment data hitting the market starting tomorrow. Below is a quick update on the state of affairs regarding this Q2 reporting season.
Earnings Scorecard: For Q2 2022 (with 56% S&P 500 companies reporting actual results), 73% of S&P 500 companies have reported a positive EPS surprise and 66% of S&P 500 companies have reported a positive revenue surprise. Earnings Growth: For Q2 2022, the blended earnings growth rate for the S&P 500 is 6.0%. If 6.0% is the actual growth rate for the quarter, it will mark the lowest earnings growth rate reported by the index since Q4 2020 (4.0%). Earnings Revisions: On June 30, the estimated earnings growth rate for Q2 2022 was 4.0%. Four sectors are reporting higher earnings today (compared to June 30) due to upward revisions to EPS estimates and positive EPS surprises. Earnings Guidance: For Q3 2022, 28 S&P 500 companies have issued negative EPS guidance and 17 S&P 500 company has issued positive EPS guidance. Valuation: The forward 12-month P/E ratio for the S&P 500 is 17.1. This P/E ratio is below the 5-year average (18.6) but above the 10-year average (17.0).
Long: ON Semiconductor Corporation (ON-NASDAQ) | Timeline: 1-2 days
ON Semiconductor Corporation, a company that provides intelligent sensing and power solutions worldwide saw an earnings beat this morning, and although the top chipmakers are seeing valuation slashes, bulls are likely to catch wind of ON as they’ve continued to be able to increase margins and earnings per share through a choppy 2022 for the industry as a whole. That being said, ON announced revenue of 2.09B and EPS of 1.34, beating expectations by 3.8% and 6.4%, respectively.
Taking a look at the chart, ON is down in the pre-market mostly due to an overall bearish sentiment on the semiconductor market through earnings, however, with a positive announcement, bulls are likely to overturn this narrative just like they did to Shopify. Aside from that, the MACD has blown through its equilibrium and price action has played a broadening wedge - a chart pattern characterized by increasing volatility as the share price oscillates within one region before breaking out upwards to a new channel.
Long: BP PLC (BP-NYSE) | Timeline: 3 days
British Petroleum is one of the largest energy producers in the world that has both upstream and downstream operations, the company operates in over 70 countries across the world. They, much like Exxon Mobil, and Chevron, are poised to benefit from the extremely high oil and gas prices that have been prevalent throughout the second quarter. Moreover, due to BP’s large exposure to European, and UK markets, with the UK alone accounting for more revenue than the US during the 2019 period, they are also likely to benefit from the ongoing energy shortage within the continent. Those markets have been faced with increasing energy costs as Russia began to strangle the flow of natural gas into the region. Although this has harmed the consumer, energy demand is quite inelastic and as such producers have benefitted in the short term. Moreover, while the company has been trading below its 50 day, and 200 day moving averages, the MACD has been on an upward trend for the previous two weeks, with no indication that this momentum will reverse as we head into earnings.
Chart of the Day - Rate of US Treasury Bond Issuances