The winning season starts in the coming week with stunning growth that validate the 2021 market run

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Traders on the floor of the New York Stock Exchange, June 25, 2021.

Source: NYSE

The second quarter reporting season kicks off next week and impressive results could confirm a market that continues to easily shake off all concerns on its steady march to record high after record.

In the depths of the pandemic, S&P 500 companies’ earnings are expected to increase 65% year over year in the second quarter, according to Refinitiv. The growth is led by an almost 570% increase in profits for industry, one of the hardest hit sectors during the pandemic.

“The second quarter could be as good as possible for economic growth,” said Callie Bost, senior investment strategist at Ally Invest. “Earnings growth may be slowing, but analysts still expect S&P earnings to grow double-digit over the next two quarters. It is critical not to lose confidence in the market just because the strongest economic growth is behind us could.”

The S&P 500 climbed to another record on Friday after a minor setback on Thursday. Banks and other stocks linked with an economic comeback led the way. On Friday’s gain, the benchmark posted a 0.4% gain for the week and its sixth positive week in seven, bringing its gains to over 16% in 2021.

The financial sector kicks off the reporting season on Tuesday with reports from JPMorgan Chase and Goldman Sachs. Bank of America, Citigroup and Wells Fargo report on Wednesday and Morgan Stanley and Truist on Thursday.

The banking industry is expected to report blowout results for the second quarter, with S&P 500 financial sector earnings doubling year over year, according to Refinitiv. Big banks recently announced that they would increase their dividend payouts after the Federal Reserve gave lenders a thumbs up as all 23 passed the central bank’s stress test.

Bank stocks led the sell-off on Wall Street Thursday as some investors turned down bets amid a surprise drop in government bond yields. Then on Friday they snapped back immediately. A strong earnings result could help stabilize the sector, which wavered amid mounting concerns about slowing growth.

Big winning numbers ahead

In addition to other sectors, according to Refinitiv, a big profit comeback is also expected for cyclical consumer goods companies with a profit increase of 271%. Energy companies are expected to recover 225% earnings and commodities to see earnings growth of 115%. Tech is lagging these sectors with growth of 31.6%. A profit decline of 0.9% is expected for utilities.

“Once you’ve passed the peak of economic growth and earnings growth, you get higher volatility,” said Matt Stucky, portfolio manager for stocks at Northwestern Mutual Wealth Management Co. “We still believe that path of least resistance is higher when resistance it’s about stocks, but with more volatility than we had. “

He said he expected stocks to continue to gain but grow at much more normal levels. “There are fundamental reasons to be optimistic about the market for the next year,” said Stucky. He said profits should be strong and companies that can pass on higher costs will raise prices.

inflation

There is also some important data ahead of us, particularly Tuesday’s consumer price index. CPI inflation rose at an above-expected 5% annual rate in May, and June could be hot too. The Fed has announced that it will let inflation rise above the target level of 2% and monitor an average inflation rate.

“I think all inflation data will become more important,” said Jim Caron, head of global macro strategy at Morgan Stanley Investment Management. “It’s not a question of whether it will fall. It is about whether it will fall fast enough to make the Fed patient.

All eyes will be on the reaction of the 10 year Treasury yield to the data as the stock market has been guided by the bond market for much of the past week. As the 10-year yield fell to 1.25% on Thursday, its lowest level since February, the stock market fell as bond investors signaled that a global economic slowdown might be imminent. When yields collapsed again on Friday, so did the equity markets.

Other data includes the producer price index on Wednesday and retail sales for June on Friday.

Calendar for the week in advance

Tuesday

Merits: JPMorgan Chase, Goldman Sachs, PepsiCo, Fastenal, First Republic Bank

8:30 a.m. CPI

2 p.m. federal budget

Wednesday

Merits: Wells Fargo, Citigroup, Bank of America, PNC Financial, Delta Air Lines, BlackRock, Infosys

8:30 a.m. PPI

2:00 p.m. beige book

Thursday

Merits: Morgan Stanley, UnitedHealth, US Bancorp, Truist Financial, Bank of NY Mellon, Cintas, Alcoa, Progressive

8:30 a.m. Initial jobless claims

8:30 a.m. Philadelphia Fed

8:30 a.m. Empire Production Index

8:30 a.m. import prices

9:15 am industrial production and capacity utilization

Friday

Merits: LM Ericsson, State Street, South Kansas City

8:30 a.m. retail sale

10:00 am University of Michigan consumer sentiment

10:00 am business inventories

4:00 p.m. TIC data