Markets Rebound on Strong Corporate Earnings

Markets Rebound on Strong Corporate Earnings

Global markets ended the week higher, rebounding from the sell-off triggered by last week’s weaker jobs report. Global equities, as measured by the MSCI All Country World Index (ACWI), gained 2.54%, while U.S. equities, represented by the S&P 500, rose 2.44%.

U.S. Services Sector Stays Strong

The U.S. services sector, which makes up about 71% of GDP, remains in expansion territory despite mixed signals from recent PMI data. The S&P U.S. Services PMI hit a new high of 55.7 in July, driven by strong demand in technology and financial services, while output prices rose due to tariff-related cost increases. Conversely, the ISM Services PMI fell to 50.1, reflecting slower business activity and trade disruptions, with exports and imports indexes moving into contraction. Price pressures persisted, rising at the fastest rate since 2022.

Earnings Season Update

With 90% of S&P 500 companies having reported quarterly results, earnings season is winding down. Results have exceeded expectations, as 82% of companies beat analyst estimates by an average of 8.5%. As a result, earnings growth forecasts have been revised sharply higher to 9.7%, up from 3.8% at the end of the quarter, indicating that earlier downgrades were likely too pessimistic. Growth has been driven primarily by the communications and technology sectors, both up more than 20% year-over-year, while only energy and materials—representing less than 5% of the S&P 500’s market capitalization—have experienced earnings declines. Although earnings growth is expected to moderate in the coming quarters, a combined 10.1% growth is forecast for 2025, bolstered by a strong 12.8% increase in the first quarter. While tariffs may weigh on profit margins, earnings should remain sufficient to support stock prices over time.

U.S. Crude Oil Prices

U.S. crude oil prices declined more than 5% over the week, reaching their lowest level in over two months. On Friday afternoon, oil traded below $64 per barrel, down from $70 at the end of July and around $75 in mid-June.

Looking Ahead

Looking ahead, Tuesday’s Consumer Price Index (CPI) report may provide more insight into the impact of elevated tariffs on inflation. The most recent CPI showed an annual increase of 2.7% in June, up from 2.4% in May, suggesting that tariff-related costs may be spreading through the broader economy. However, wholesale prices rose more modestly, increasing just 2.3% in June.

As Always

I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.