Q3 Delivers +1.1% EPS Growth: The Week Ahead – September 26, 2022

In the coming global week, a weak Japanese yen could be in the market spotlight. Last week, the Bank of Japan (BoJ) stepped in to buy yen – for the first time since 1998.

Global stock traders also remain vigilant over rising tensions between Putin’s Russia and the West.

Italian election results, the latest Eurozone consumer price inflation (CPI) figures and US and Chinese macroeconomic data also provide insight for stock traders this week.

The increase in headwinds impacted the expected S&P500 EPS growth for the third quarter. This now amounts to a paltry rate of +1.1%.

Ex-Energy? Q3 EPS is down to -5.6%.

Here are Reuters’ five global market themes, revamped for stock traders –

(1) Can the American consumer continue to spend?

Can the American consumer defy runaway inflation and rising borrowing costs?

Tuesday’s consumer confidence gauge will indicate how this key pillar of the economy is holding up.

Last month, the Conference Board’s overall consumer confidence index rebounded to 103.2, ending three straight monthly declines. This month’s index is expected to hit 104, according to a Reuters poll.

In a positive sign, data from the start of the month showed U.S. retail sales unexpectedly rebounded in August as Americans increased their purchases of motor vehicles and dined more on lower car prices. gasoline.

But with stock markets falling and bond yields rising, it remains to be seen whether consumers will remain optimistic, especially given the Fed’s intention to lower inflation, even at the cost of a sharp slowdown. of growth.

(2) The strong US dollar

Japanese authorities finally had enough of a weak yen and intervened to stem a sharp decline against the dollar.

But will it work?

The runaway greenback is up more than +20% against the yen this year, and some doubt there’s much left in the tank. But as US rates rise, Japan’s are stuck just below 0% and unlikely to move.

Thus, the arguments for a strong dollar remain.

Japan, alongside its neighbors China and Korea which are also pushing back against the dollar, could find themselves battling fundamentals, the market and the Fed.

Seoul dealers suspect authorities have already sold dollars, but the won continues to fall.

Similarly, the Chinese Yuan hit fresh lows despite the central bank pulling back via the trading band. Friday’s Chinese PMI numbers, if disappointing, could add to the downtrend.

(3) On Friday, consumer price inflation in the euro zone is published

The “flash” estimate of consumer prices for September in the euro zone is published on Friday and should show inflation at a new record above +9%.

Investors have already boosted their expectations for another 75 basis point ECB rate hike in October, so the data shouldn’t change the short-term rate outlook.

Still, any sign that underlying price pressures are widening could further raise expectations for where rates are heading in the bloc.

The ECB is increasingly hawkish in its rhetoric and some ECB watchers say a mega 100 basis point rate hike cannot be ruled out in the coming months.

This is what the Swedish Riksbank has just done, as has the Bank of Canada in July.

(4) Putin’s Desperate Military Mobilization

Russian President Vladimir Putin’s military mobilization order, threats to use nuclear weapons and a push to annex swaths of Ukrainian territory mark a new stage in the seven-month-old conflict.

The announcements – coinciding with the diplomatic high point of the year that is the meeting of the United Nations General Assembly – drew condemnation around the world and sparked new protests in Russia, where conscription-age Russians traveled abroad to escape Moscow’s biggest conscription drive since World War II.

The latest escalation has reverberated through all markets: Oil prices are significantly higher, raising the specter of greater pain on the energy front for Europe.

Meanwhile, European Union foreign ministers are preparing another sanctions package – their eighth – which could be formalized in mid-October.

(5) The Italian election

When Italy last went to the polls in 2018, markets were rocked by anti-euro rhetoric from populist parties.

After last Sunday’s vote, a right-wing alliance led by Giorgia Meloni’s Brothers of Italy party was on track to win a clear majority in the next parliament, giving the country its most right-wing government since World War II. .

Meloni, as leader of the largest party in the coalition, was also likely to become Italy’s first female prime minister.

His Brothers of Italy party has its roots in a post-fascist movement. But Meloni, favorite to succeed Mario Draghi and become Italy’s first female prime minister, has put on an EU-friendly face, reassuring investors.

Italy’s 10-year bond yield spread over Germany has widened from post-pandemic lows, but is far from the levels seen in 2018. Nonetheless, the extent of the grip of Meloni on Parliament will be closely watched.

Investors could welcome a solid majority less than the two-thirds needed to change the constitution, which could cause instability.

How a new government navigates an energy crisis pushing heavily indebted Italy into recession will also be closely scrutinized.

Zacks #1 Ranking (STRONG BUY) Stocks

I found three interesting world-related names to review this week.

(1) Deutsche Telekom (DTEGY free report): It is a diversified telecommunications industry stock at $18.40 per share, with a market capitalization of $87 billion. I see a Zacks Value score of A, a Zacks Growth score of B, and a Zacks Momentum score of C.

(2) BYD Company (BYDDY free report): It is a $54 per share mainland Chinese electric vehicle industry stock, with a market capitalization of $74 billion. I see a Zacks Value score of D, a Zacks Growth score of C, and a Zacks Momentum score of D.

(3) AirBnB (ABNB free report): It is a $103 per share internet home rental industry stock with a market capitalization of $74.0 billion. I see a Zacks Value score of F, a Zacks Growth score of A, and a Zacks Momentum score of A.

Amid the rate and geopolitical turmoil, positive earnings momentum is occurring.

They are picked up by the covering analysts.

Key global macro

On Friday, keep an eye on Eurozone consumer inflation data.

In the Eurozone, according to the website of the European Central Bank (ECB), the Harmonized Index of Consumer Prices (HICP) is used to measure consumer price inflation. This is the change over time in the prices of consumer goods and services purchased by households in the euro zone.

It is “harmonised” because all the countries of the European Union follow the same methodology. This ensures that data from one country can be compared with data from another.

On Monday, the German IFO indices come out for SEPT. Business Sentiment was 88.5 in August, Current Assessment was 97.5 in August, Expectations were 80.3 in August.

Tuesday, US Case-Shiller Home Price Index data is updated. This will be July data (there is a 2 month lag here). The prior is +18.6% y/y.

US new home sales for August are also over. The previous reading was down -12.6%y/y.

Wednesday, US home sales pending for AUG come out. I see a prior reading of -19.9% ​​y/y.

Thursday, U.S. Personal Consumption Expenditure (PCE) baseline data for the second quarter is released. I see a prior reading of +4.4% y/y. These are the Fed’s favorite inflation data.

Friday, the Mainland China NBS Manufacturing PMI came out for SEPT. I see that a reading of 49.4 is the previous one. The non-manufacturing PMI is also out. This forward was 52.6.

The Eurozone HICP (their CPI measure) could be +9.1% y/y. Ex F, E, A, T is much lower. It could be +4.3% y/y. This shows the huge energy price challenge facing Europe today.

Conclusion

Here are the top four earning points for Zacks research director Sheraz Mian. He wrote them on September 21.

(1) S&P500 earnings growth of +1.1% is expected for Q3-2022. This is down from +7.2% at the start of the period.

Excluding Energy, Q3 results are down -5.6% to date, a significant decline from +2.1% at the start of July.

(2) Q3 estimates have been reduced for 14 of the 16 Zacks sectors since the start of the 3rd quarter.

S&P500 sector with the most decline? They come from the consumer discretionary, consumer staples, technology, retail and conglomerate sectors.

(3) He still expects total S&P500 earnings to be up +6.9% in 2022 and +6.3% in 2023.

However, on an ex-energy basis, it indicates that total S&P500 earnings for 2022 would be up +0.3% (instead of +6.9%, including energy).

(4) Earnings estimates for the full year 2023 have declined after peaking in mid-April.

The aggregate total is down -3.87% compared to the peak of the whole index, and -6.36% excluding Energy.

That’s all for me.

Good business week.

Best wishes,

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Zack Chief Equity Strategist and Economist

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