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Next Leg for Market Rally: Strong Q2 Earnings?


Monday, July 10th, 2017

The stars are aligned for the next earnings season to claim headlines beginning late this week and for the next three weeks beyond. A strong Q1 earnings season last time around kept the Trump rally lit over the spring, and favorable economic reports like ISM Manufacturing and BLS non-farm employment last week helped stoked these fires again heading into a plethora of Q2 reports.

As Q2 occurs in the summertime, stock trading activity typically sees lower volume on earnings performance. And while we’re near all-time highs on the market indexes, especially at this point of this very long bull market, there may be some natural headwinds that would keep the rally muted even if earnings reports are better than expected this quarter.

Also consider what Zacks Director of Research Sheraz Mian recently found — that growth trends among the big banks like JPMorgan JPM, Citigroup C and Wells Fargo WFC have softened ahead of Q2 earnings, which was not the case directly prior to the very successful Q1 earnings season. Read Sheraz’s comprehensive Earnings Preview report from Friday: Have Bank Stocks Finally Turned Around?

That said, Zacks Chief Strategist John Blank still sees a strong market directly ahead, likely to be stoked by positive earnings results. “While the second quarter estimate is lower, it still should be a strong quarter, and the 4th quarter in a row that shows positive earnings momentum,” he says. Check out his Global Week Ahead piece from this morning here: The Running of the Bulls

Next week, we’ll really be in the thick of Q2 earnings season, but the big banks reporting on Friday of this week own an outsized percentage of S&P 500 market capitalization. They are also the initial companies to benefit from increased interest rates, which has gone up another quarter percent since Q1 earnings season commenced. Big tech and other important industries will grab headlines a week from now, but speculation on the strength of the new earnings season will begin as soon as these bug banks’ numbers hit the tape.

Amazon Prime Day

Aside from earnings expectations. market participants will likely be taking a look at Amazon’s AMZN Prime Day, which begins this evening at 9pm ET and lasts for 30 hours. Sales on Amazon items for its estimated 85 million prime subscribers globally is expected to again be the biggest day of the year for the mega-retailer; in 2016, Prime Day outperformed even Black Friday’s results, on global growth of a whopping 60%.

This event still has a ways to go to reach Alibaba’s BABA massive Singles Day promotion, a $15 billion, 24-hour juggernaut of Chinese retail. But no one on the domestic front can compete with Amazon’s sales performance at this stage, and the company will be looking to prove this once again tonight and through tomorrow.

Mark Vickery
Senior Editor

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