Corporate earnings season is now in full swing; early signs are suggesting that it may offer some good and bad. Netflix fell over 10% after it failed to meet its revenue targets, the stock remains up something approaching 30% this year. However, of the stocks that reported, a large majority have beaten analysts estimates according to a report on CNBC. Late on in the day, Microsoft did not fail to disappoint, as the stock traded higher again post the earnings report. We have had only a few heavyweight names report so far, mainly in the bank's sector. The next test will be the impact that some of the more cyclically exposed sectors such as industrials will have and how they perform. Early indications would suggest that companies have lowered expectations far enough to make it easier to meet those expectations.
On the macro front, the picture for the US economy remains mixed. The Philly Fed survey showed a larger than expected jump. The survey is otherwise known as the business outlook survey asks questions to manufacturers on general business conditions. The Philly survey can be a lead indicator for the ISM surveys later in the month. In contrast, the central bank's Beige Book economic report, which is based on anecdotal information collected from the Fed's 12 regional banks, continues to soften. Other possible evidence that the US economy continues to soften comes from Cass information systems. The June freight figures show a sharp slowdown in industrial activity. The Russell 2000 index of smaller companies have underperformed the larger cap index S&P 500. The smaller cap index tends to lead the larger one historically. New York Federal Reserve President John Williams stoked the already burning interest rate fire, speaking on Thursday.
One factor that may start to play is the re-election of Trump. The President continues to polarise opinions; however, at present, his popularity is such that he is considered almost odds on to win another term in office. In his time, he has introduced highly popular tax reforms; however, he has also raised the spectre of trade wars. He has put pressure on the Fed to change interest rate policy, contrary to political etiquette. His arrival was met with considerable scepticism from the capital markets at the time. Should the mood swing, possibly in favour of a democrat, capital markets may not react well to that possibility, mainly as it is underprepared for such a scenario.