Not a time to get burned

The holiday season is on its way, and supposedly, the busiest weekend for airline companies is coming up, as many head for the sun, but there is no rest for company CEOs and central bankers. Last week was busy for corporates, as many household names reported their latest numbers. Nearly half of the S&P 500 have now reported their second-quarter results, and according to FactSet, the earnings growth rate for the S&P 500 so far is 9.8%. If 9.8% is the actual growth rate for the quarter, it will mark the highest year-over-year earnings growth rate reported by the index since Q4 2021. However, there seems to be little travel and arrival as companies are not entirely being rewarded for meeting or beating expectations whilst being penalised for a cautious outlook; Honeywell is a perfectly good example.

This week, many well-known US names are reporting earnings, including several of the so-called magnificent 7. Microsoft, Meta, Amazon and Apple are heading to the plate. There is a lot of pressure on these companies to deliver after the expectations investors have priced in.

The combination of an upcoming US election, a change of candidate to represent the Democrats, the middle of reporting season, and uncertainty as to what the Fed is planning with interest rates has resulted in a sharp jump in the Vix fear index in the past month, although the US dollar basket has not moved much.

So, both the Fed and the Bank of England rate-setting members have difficult decisions to make this week. On Monday, Rachael Reeves makes her first public statement on the state of the country’s finances. Ms Reeves is expected to blame the previous Chancellor for a 20-billion-pound hole in the public finances to justify a series of tax increases. At the same time, she is about to approve a 5.5% wage increase. The Fed is looking at an economy that provides mixed signals; last week’s GDP report suggests the US consumer remains resilient. The probability of a return to the White House of Mr Trump whose proposed policies contain their own inflationary risks. In a nutshell, both committees face pressures to cut rates whilst probably fearing the policies of governments.

There has been a correction in US stocks in the past month, but in the overall scheme of things, it has been a minor blot on the landscape. Neither the Bank of England nor the Federal Reserve are expected to announce policy changes this week, but they are expected to manage expectations for September. There is plenty for those heading to the sun beds to consider.