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Will a US Debt Downgrade be a ‘Bearish’ Catalyst?
Earlier this week, Fitch Ratings downgraded the U.S.’ credit rating. Stocks slipped a little on the news and bond yields ticked higher. The US 10-year treasury yield is now north of 4.10%. Fitch cited “expected fiscal deterioration over the next three years” and an erosion of governance. Hard to argue. Fiscal restraint is not one of the government’s strengths. But this isn’t entirely new news. For example, the credit agency placed the nation’s rating on watch in May following a near-default after members of Congress butted heads over raising the debt ceiling. However, this put the wheels in motion….
Half Way Through Earnings: 81% Beat on EPS
This week was the busiest week of earnings on the calendar. Half of all S&P 500 companies have now reported for Q2. So far so good! 81% of companies have beaten earnings per share (EPS) expectations – by an average of about 6.4%. By way of comparison – prior to COVID – the average EPS beat was in the realm of ~3%. What’s more, about 64% of all companies have also beaten top line expectations. The question is will this continue in the second half?
Fed: Don’t Expect Rate Cuts
If nothing else, I took one thing away from this week’s Fed decision: don’t expect rate cuts anytime soon. The market had priced in a 25 bps rate increase – with the Fed flagging it well in advance. And the Fed didn’t disappoint. But what they were hoping for was more of “dovish hike” It wasn’t coming… Powell is keeping things tight-lip. And he has good reason to… he (like the market) simply doesn’t know what lies ahead. And whilst things appear to be trending in the right direction – it’s far too premature to call a victory over unwanted inflation
Are Recession Callers Back-peddling?
It’s the rally everyone loves to hate. Why? Because very few got it right. Most fund managers missed this rally entirely… thinking it was only a matter of time before things collapsed. The thing is – they haven’t. I will admit – I also got this wrong. My initial target at the start of the year was 4200. If that broke – I was looking at resistance around 4500. The S&P 500 now trades 4536 – making me look foolish (and it won’t be the last time I am sure). We’re now just past the mid-point of the year – with the S&P 500 up 18.2% YTD. Remarkable by any measure. What are Wall St saying about the second half?