November 27, 2023

Introduction:

As the third quarter enters its second month, traders are eagerly anticipating the upcoming week, which promises to be filled with crucial economic data and corporate earnings reports from some of the world’s largest corporations. The highlight of the week will be the quarterly reports from tech giants Apple (AAPL) and Amazon (AMZN), which are expected to provide insights into the state of the consumer, business spending, and the future of artificial intelligence. Additionally, all eyes will be on the July jobs report, as it will shed light on the strength of the labor market, which has been the driving force behind the economy’s resilience and growth.

Economic Data Points to Encouraging Signs:

The economic data leading into August has been pleasantly surprising, with the second quarter experiencing an unexpected acceleration of economic growth and cooling inflation. These positive developments have been met with enthusiasm in the stock markets, leading to gains for all three major averages. The Nasdaq Composite has been the standout performer, rising by nearly 37% for the year, while the S&P 500 and Dow Jones Industrial Average have also posted respectable gains of 19% and nearly 7%, respectively.

Growing Optimism for a “Soft Landing”:

Notably, there is a growing sentiment among economists that the widely projected 2023 recession may not materialize, and even if it does, it could be significantly subdued. This so-called “soft landing” scenario, where inflation stabilizes without causing a major economic downturn, is gaining traction among some economists. Federal Reserve Chair Jay Powell also expressed confidence in this outcome, further reinforcing the positive sentiment.

Upcoming July Jobs Report Holds Key to Economic Outlook:

The much-awaited July jobs report will play a pivotal role in shaping discussions around the Fed’s interest rate hike cycle. Economists have been closely monitoring the labor market, which has been pivotal in supporting consumer spending and overall economic growth. Expectations for the July jobs report suggest the addition of 200,000 nonfarm payroll jobs to the US economy with the unemployment rate remaining steady at a historically low 3.6%. While June’s job gains fell short of expectations, economists anticipate a continuation of the gradual slowdown in job growth, with 175,000 jobs expected in July.

Corporate Earnings Season Progresses:

As the midpoint of the second quarter earnings season approaches, companies have been beating Street expectations, with 80% of S&P 500 companies reporting earnings per share above estimates. However, overall earnings have declined for a third consecutive quarter, recording a 7.3% earnings decline compared to the same period last year. Despite this decline, the benchmark S&P 500 has been on an upward trajectory, gaining 1.6% since the start of the reporting season.

Headliners: Apple and Amazon Earnings:

Apple and Amazon are set to release their quarterly earnings reports, with both companies under scrutiny due to their significant influence on the technology sector and the overall market. Apple’s stock has soared this year, experiencing a 50% increase and recently reaching a market cap of over $3 trillion. While there are concerns about the valuation of tech giants, analysts remain optimistic about Apple’s earnings performance, citing a growing iPhone installed base as a driving factor for revenue growth.

For Amazon, the focus will be on its Amazon Web Services unit and whether growth will re-accelerate in the cloud services segment. Competitor Microsoft’s recent announcement of an expected deceleration in revenue growth from Azure has led analysts to closely monitor Amazon’s results.

Conclusion:

The upcoming week is poised to be a significant one for traders, with corporate earnings from tech giants Apple and Amazon, alongside the July jobs report, shaping market sentiments and discussions around the economy’s future trajectory. As economic data continues to impress and inflation cools down, the possibility of a soft landing following the Fed’s interest rate hike cycle gains traction among economists. With the midpoint of the earnings season in sight, companies’ performance has been impressive, beating expectations despite an overall earnings decline.

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