Oppenheimer Asset Management reported on Monday that the latest quarterly results of S&P 500 companies have shown a ‘fairly solid’ rise in profits. As of Friday, nearly 463 companies in the index had released their results, showing an 8.5 per cent increase in year-on-year profits and 4.8 per cent growth in revenues. According to John Stoltzfus, chief investment strategist at Oppenheimer, the companies have ‘handily beaten’ analysts’ estimates, with results that have “surprised on the upside” across the board.
With the exception of materials and industrials, all sectors of the S&P 500 posted year-on-year gains, highlighted by a 17% increase in healthcare and a 16% rise in consumer discretionary. Earnings in utilities and financials also increased by double digit percentages. In terms of sales, the energy and healthcare sectors each posted annual increases of more than 7%, while only the industrials and materials sectors showed declines.
This week, only 15 companies are scheduled to report results, while 16 will report next week. Palo Alto Networks (PANW) will report after the close on Monday, and later in the week Intuit (INTU), TJX (TJX), Lowe’s (LOW), Analog Devices (ADI) and Target (TGT) will report.
Federal Reserve Chairman Jerome Powell’s remarks at the annual economic symposium in Jackson Hole, Wyoming, will be a key focus for markets this week. Policymakers are expected to cut the benchmark interest rate by as much as 50 basis points next month, according to Stoltzfus.
Markets are pricing in a 78% chance that the central bank’s Federal Open Market Committee will cut interest rates by 25 basis points in September, with the remaining odds favouring a more aggressive 50 basis point reduction, according to CME’s FedWatch tool.
Stoltzfus noted that with many expecting a cut of up to 50 basis points in September, any hesitation in Powell’s statement could reintroduce volatility into the market. In an attempt to control inflation, the FOMC tightened monetary policy by 525 basis points from March 2022 to July 2023, but has since kept interest rates unchanged, with the latest pause late last month.
Stoltzfus sees a 25 basis point cut next month as more likely, as recent data on jobless claims and retail sales indicate a resilient economy. According to him, the data show enough economic momentum for the Fed to be confident of a 25 basis point cut in September, with the possibility of another similar cut in November or December.
Any hint from Powell about a lack of monetary policy easing in September could ‘reintroduce a negative reaction, especially among highly leveraged players in the market,’ Stoltzfus said. On the other hand, a 50 basis point cut could raise concerns that policymakers feel they have waited too long to ease policy and need to play catch-up to avoid a recession.