This week’s biggest market events have one thing in common: the state of the U.S. economy. The biggest day is Tuesday, when the nation’s biggest banks such as JPMorgan, Bank of America and Citigroup, as well as club names Wells Fargo and Goldman Sachs, begin their second-quarter earnings season. As if that wasn’t enough, the June Consumer Price Index report is scheduled to be released at 8:30 a.m. ET on Tuesday, just as JPMorgan’s influential conference call, led by CEO Jamie Dimon, is scheduled to begin. For the rest of the week, nonbanks with important economic and consumer behavior insights also made gains, most notably trucking company JB Hunt, Netflix, and United Airlines. The Economic Calendar includes a second inflation report, the Wholesale Producer Price Index, among other smaller updates. Don’t forget, the club’s name, Johnson & Johnson, reported Wednesday morning, and the monthly meeting for July is set for Thursday at noon ET. Now let’s take a closer look at what you can expect from the portfolio names and inflation data. 1. Bank Earnings: Macroeconomic reports are important for understanding the economy at a higher level, but nothing compares to the real-time comments you receive on a post-earnings conference call. That’s even more true when it comes to banks. Of course, all banks can provide information about their own operations, but the large banks we invest in have unique insight into the global economy given how much money passes through them on a daily, weekly, and quarterly basis. This flow of money provides incredible insight into all levels of economic activity. Both Wells Fargo and Goldman Sachs will report before the bell on Tuesday. Wells Fargo’s conference call begins at 10 a.m. ET. Goldman will start 30 minutes early at 9:30 a.m. ET. For both banks, and let’s be honest, this holds true for the rest of the earnings season, we’d like to know what quantitative benefits management has seen from implementing artificial intelligence. They’re also looking to think about AI spending levels as companies move away from the blank-check attitude known as “tokenmaxxing” and ramp up efforts to optimize their compute spend. Our latest club check-in video explains this change. Of the two, Wells Fargo should give you a little more insight into the state of the consumer. Goldman Sachs should be able to take a closer look at companies’ M&A and financing activity, including IPO pipelines, public companies’ interest in debt or equity sales, and the market’s willingness to fund those efforts. This is a pivotal quarter for Wells as far as investing in stocks is concerned. After a series of disappointing quarters, we need to see the bank return to a level that beats Wall Street’s expectations. Along these lines, management must instill confidence that return on tangible common equity (ROTCE) performance continues to trend in a sustainable 17%-18% range and that it is still on a clear path to achieving solid sales growth. ) ROTCE is an important metric used to assess how well a bank is using its capital to generate profits. Additionally, Wells’ efficiency ratio (operating expenses divided by net revenue) will be closely monitored as it has been trending in the wrong direction for the past two quarters. Revenues: $21.8 billion Earnings per share: $1.72 For Goldman Sachs, the earnings backdrop is clearly positive given the number of deals, IPOs, and fundraising efforts the company has undertaken in the first half of this year. Most notably, Goldman led SpaceX’s record-breaking second-quarter IPO, which will be included in Tuesday’s investment banking numbers. As a result, the focus will be on operational performance that demonstrates sustainable ROTCE and profit growth throughout the business cycle. In other words, investors want to better understand how Goldman Sachs will perform in a normalized environment, not just when IPOs and M&A activity increases. ROTCE also tends to be the focus of investors when determining the price/earnings ratio of financial stocks. Revenue: $16.1 billion Earnings per share: $14.39 2. J&J Earnings: Thanks to weeks of strong gains across the healthcare group, Johnson & Johnson entered the earnings week near all-time highs. There’s no doubt that some of J&J’s strength is due to the market’s broader shift away from hot AI stocks and into healthcare. But now, Wednesday’s earnings report is J&J’s chance to show that its business is worth owning for fundamental reasons. On the other hand, the management team, especially CFO Joe Wolk and CEO Joaquin Duato, is not a promotional duo, so the rally could raise the bar and lead to profit-taking. Wolk, in particular, can be conservative when it comes to forward guidance. Nevertheless, there’s a lot to like about J&J’s story as growth accelerates with a healthy pipeline and commercial plans. Key drugs to watch this quarter are Darzalex, a blood cancer drug, and Trenfya, an injectable treatment for autoimmune diseases that affect the skin, such as plaque psoriasis, and the gastrointestinal tract, such as Crohn’s disease and ulcerative colitis. Investors are also looking for updates on the launch of Icotide, a daily psoriasis treatment approved by U.S. regulators in March. This is one of J&J’s most exciting new products that will drive growth for years to come. Indeed, Goldman Sachs analysts last week said they don’t expect J&J to disclose Icotyde sales to its last client “consistent with the company’s reporting practices regarding early launches.” Instead, the focus will be on the number of prescriptions and the types of patients taking them. The main growth drivers for J&J’s medical devices division are the 2024 acquisition of Shockwave’s cardiovascular heart health products and Impella heart pumps. Keep in mind, J&J’s pharmaceutical business ($15.4 billion in sales, 7.4% organic growth last quarter) is larger and growing faster than its medical devices business ($8.6 billion in sales, 4.6% organic growth). Here’s the top and bottom line the Street is predicting: Revenue: $25.05 billion Earnings per share: $2.85 3. Economic data: The biggest reports this week are Tuesday morning’s Consumer Price Index report and Wednesday morning’s Producer Price Index report. Both are scheduled for June. Inflation conditions will be critical to the Federal Reserve’s interest rate decisions in the coming months and early next year. Thankfully, the sharp decline in oil prices during June eased some of the energy-driven inflationary pressures on the U.S. economy, with WTI crude oil falling from the low $90s per barrel in early June to just under $70 by the end of the month. It should be noted that the reason for the decline (an interim peace agreement between the US and Iran that led to the partial reopening of the Strait of Hormuz) became a bit vague as tensions between the two countries rose again last week. In response, tanker traffic passing through Hormuz slowed. Missiles and drones continued to fly over the weekend. So while we hope June’s CPI report subsides from May’s 4.2% annualized rise, what happens to oil prices going forward is more important to our view of inflation than this negative data. Economists surveyed by FactSet as of Friday expected the consumer price index to rise 3.8% annually and decline 0.2% from a month earlier. On the other hand, PPI measures the price that producers receive for their goods and is therefore considered a leading indicator of consumer inflation. If a company is paying more for raw materials such as steel, it may consider passing those higher costs onto the finished product in the future. PPI is expected to rise 6.2% annually and decline 0.2% monthly, according to FactSet on Friday. A brief explanation of other economic reports. June retail sales data helps you understand where consumers are spending their money. Meanwhile, Friday’s housing starts data is relevant to our Home Depot position. The Federal Reserve’s monthly report on industrial production and capacity utilization will also be released Friday, making the level of domestic industrial activity important to the club’s name, FedEx Freight. The more things are made, the better it is for FedEx Freight, North America’s largest carrier with less-than-truckload services that consolidate multiple customers’ packages onto a single trailer. 1 Week Ago Monday, July 13th Before the Bell: No notable reports After the Bell: Aerogrow International (AERO) Before the Bell: Tuesday, July 14th Before the Bell: Goldman Sachs (GS), Wells Fargo (EFC), Citigroup (C), JP Morgan (JPM), Bank of America (BAC), Fastenal (FAST), Ericsson (ERIC) Wednesday, July 15th Before the bell: Johnson & Johnson (JNJ), ASML (ASML), Progressive (PGR), BlackRock (BLK), Conagra (CAG), Morgan Stanley (MS), Cintas (CTAS), PNC Financial (PNC), BNY Mellon (BNY), M&T Bank (MTB) After the bell: United Airlines (UAL), JB Hunt (JBHT) July 16 Sunday, Thursday Before the bell: United Health (UNH), Taiwan Semi (TSMC), GE Aerospace (GE), Abbott (ABT), Citizens Financial (CFG), State Street (STT), Prologis (PLD) After the bell: Netflix (NFLX), Alcoa (AA), Intuitive Surgical (ISRG) Friday, July 17 Before the bell: Regionals Financial (RF), Truist Financial (TFC), Fifth Third Bancorp (FITB), Autoliv (ALV), Travelers (TRV) After the Bell: No notable reports (Jim Cramer Charitable Trusts are long GS, WFC, JNJ, HD, and FXDF. See here for a complete list of stocks.) As a subscriber to Jim Cramer’s CNBC Investment Club, you will receive trade alerts before Jim makes a trade. After Jim sends a trade alert, he waits 45 minutes before buying or selling stocks in his charitable trust’s portfolio. If Jim talks about a stock on CNBC TV, he will issue a trade alert and then wait 72 hours before executing the trade. The above investment club information is subject to our Terms of Use and Privacy Policy, along with our disclaimer. No fiduciary duties or obligations exist or arise from your receipt of information provided in connection with the Investment Club. No specific results or benefits are guaranteed.
