Next week is expected to be a big week for markets, with investors anticipating the start of second-quarter earnings season and the release of key inflation data for June, just as there are fears of a major flare-up of the war between the US and Iran. The corporate reporting season, which begins next week, is expected to see earnings growth of more than 20% for the second straight quarter, which could be an impressive showing for investors that the bull market in stocks is intact. BMO Capital Markets noted this week that nearly all of the S&P 500’s year-over-year returns are tied to earnings growth, not price-to-earnings ratio expansion. If this situation continues, the stock market could continue to hit new highs even if multiples fall. “This isn’t a PE-driven bull market these days. It’s an earnings-driven market,” Ed Yardeni, president of Yardeni Research, said on CNBC’s “Closing Bell” this week. “And I think it’s going to continue to be an earnings-driven market.” The longtime market researcher predicts the S&P 500 could end the year at 8,250, which would equate to an additional 10% rise in the overall market index from current levels. The S&P 500 index is already up nearly 11% since the beginning of the year. Next week’s reports from major banks are expected to signal to investors the solid state of the capital markets, especially given recent trading activity. Citigroup, Goldman Sachs Group, Wells Fargo, JPMorgan Chase and Bank of America are all scheduled to release their latest financial reports on Tuesday. BlackRock and Morgan Stanley will report their results on Wednesday. Traders will also be keeping an eye on the earnings of ASML, one of the world’s leading semiconductor equipment makers, and Taiwan Semiconductor Manufacturing Co., as they gauge whether the chip trade shows signs of drying up. The VanEck Semiconductor ETF (SMH) has soared about 70% this year. Interest Rate Outlook Future earnings may depend on the development of interest rates and, as a result, relatively benign inflation. Energy prices are rising again following the end of the ceasefire between the US and Iran, raising concerns that price pressures will continue to rise. This week, Brent crude oil futures rose 7% to more than $77 per barrel, and West Texas Intermediate crude oil rose 6% to more than $72 per barrel. Until now, investors have viewed oil shocks as temporary pass-throughs to inflation. However, a resumption of hostilities between Washington and Iran could upend that outlook if price pressures prove more sustained. “It’s too early to tell because is it a flare-up or is it an escalation?” said Brian Leonard, portfolio manager at Keely Gabelli Funds. “There have been intermittent flare-ups over the last six weeks, but I think if it’s an escalation, we might be able to readjust the price.”Stocks rose on Thursday after President Donald Trump said Iran sought a deal. MS Now reported that Qatar and Pakistan are trying to bring the US and Iran back to the negotiating table. A government official said the two countries were continuing “technical discussions.” Next week’s inflation data could provide an early indication of where price pressures are strongest. Consumer prices are expected to rise at an annualized rate of 3.8% in June, down from 4.2% in May, according to FactSet consensus estimates on Tuesday. Estimates suggest that monthly core inflation will accelerate slightly from 0.20% to 0.22%. Wholesale inflation is expected to slow slightly in June. The producer price index on Wednesday is expected to decline 0.20% last month but rise 6.2% from a year ago, according to economists polled by FactSet. In the last report, wholesale inflation rose 1.1% month-on-month and 6.5% annually. The results will help shape the Federal Reserve’s future actions. The central bank is embroiled in what Fed Chairman Kevin Warsh has called a “family battle” as it debates whether to tighten policy or leave interest rates unchanged later this year. Markets last priced in a quarter-point rate hike as early as the September meeting, according to the CME FedWatch tool. Investors will hear directly from Mr. Warsh next week, but he has decided to communicate less than his predecessors Jerome Powell, Janet Yellen and Ben Bernanke. Mr. Warsh is scheduled to give his first testimony on monetary policy before Congress starting Tuesday. Week Ahead Calendar All Time (ET). Monday, July 13, 2:00 p.m. Financial Budget (June) Settlement: Fastenal Tuesday, July 14, 6:00 a.m. NFIB Small and Medium Enterprise Index (June) 8:15 a.m. ADP Weekly Employment Change (06/27) 8:30 a.m. CPI (June) 8:30 a.m. Hourly Profit Taken (June) 8:30 a.m. Final weekly average working hours (June) Federal Reserve Chairman Kevin Warsh submits semiannual monetary policy reports to Congress. Earnings: Citigroup, Goldman Sachs Group, Wells Fargo, JPMorgan Chase, Bank of America Wednesday, July 15, 8:30 a.m. Empire State Index (July) 8:30 a.m. Producer Price Index (June) Earnings: JB Hunt Transport Services, United Airlines, Cintas, Morgan Stanley, Johnson & Johnson, PNC Financial Services Group, Bank of New York Mellon, Elevance Health, M&T Bank, BlackRock Thursday, July 16th 8:30am First Claims (07/11) 8:30am Philadelphia Fed Index (July) 8:30am Retail Sales (June) 10am Business Inventory (May) 10am NAHB Housing Market Index (July) 10am Pending Home Sales (June) Revenue: Netflix, Prologis, State Street, Abbott Laboratories, US Bancorp, Citizens Financial Group, UnitedHealth Group, Trust Financial, GE Aerospace Friday, July 17th 8:30 a.m. Export Price Index (June) 8:30 a.m. Housing Starts (June) 8:30 a.m. Import Price Index (June) 9:15 a.m. Capacity Utilization (June) 9:15 a.m. Industrial Production (June) 10 a.m. Preliminary Michigan Sentiment (July) Earnings: The Travelers Cos., Truist Financial, Fifth Third Bancorp, Regions Financial
