Inflation will return front and center this week with the announcement on Tuesday and then the on Wednesday. I am expecting very favorable core CPI and PPI reports. Economists are expecting the overall CPI and PPI will both decline 0.2% in June, so it is widely expected that inflation will be cooling.
Then on Thursday the June report will be announced. Economists are only expecting retail sales to rise 0.2% in June, so a big surprise is possible, especially since retail sales surged 0.9% in May. There is no doubt that consumer spending is improving, especially in light of the stock market’s second quarter performance. So, the only real question is: are we still in a “K-shaped” recovery in led by the Baby Boomers with stock market exposure, or is consumer spending also improving with lower-income folks as well?
The analyst community is expecting the ’s second quarter earnings to rise 22%, but due to wave after wave of positive analyst earnings revisions, expectations are high for much stronger underlying earnings. Typically, positive analyst earnings revisions precede earnings surprises. Energy-related stocks are forecasted to post the strongest earnings, followed by information technology and semiconductors, then material stocks. Only these three of the 11 S&P 500 sectors are forecasted to post stronger second quarter earnings than the overall S&P 500, so we still remain in a relatively narrow stock market environment. A good omen is that surged in the wake of a 43.1% earnings surprise, so good earnings announcements are clearly being rewarded.
Another great omen is that Taiwan Semiconductor Manufacturing () announced that its June sales soared 67.9% in June to a record $13.99 billion. TSM’s June sales rose 6.2% compared to May and were 1.1% higher than analysts’ consensus expectation. These strong sales for TSM bode well that the AI-related stocks, like semiconductors are now more likely to continue to post sales and earnings in excess of analyst estimates.
Naturally, the AI-related stocks and data center stocks are also expected to post strong guidance, especially pertaining to their order backlogs. TSM will announce its second quarter results on Thursday. The analyst community is expecting 35% annual sales growth and 48% earnings growth, but due to TSM’s accelerating sales, I am expecting the company to post better-than-expected sales and earnings.
