A jubilant July typically heralds a sensational second half of the year. But history doesn’t always repeat itself.
The S&P 500 rose an impressive 3.1% last month. When the index has risen at least 2.5% in July, it averages a gain of 8.4% in the second half of the year, according to Dow Jones Market Data.
But, if 2023 is going to conform to that trend, investors may well be wondering where those gains are going to come from.
Now that recession fears have subsided (part of the reason for last month’s gains), investors have shifted their focus when it comes to economic data. They can’t be too bad as to damage the economy and bring back recession concerns, but they can’t be too good as to push the Federal Reserve into more rate hikes.
The sweet spot is likely to be data that are slightly below expectations. The Fed signaling an end to its hiking cycle is another potential catalyst.
The history-matching gains are unlikely to come from this earnings season—despite being robust, companies have not been rewarded for beating expectations.
S&P 500 companies reporting positive surprises have actually suffered an average 0.2% share price decline in the period that runs from two days before earnings to two days after, according to FactSet data. That’s below the five-year average of a 1% jump.
The magnitude of earnings surprises is also below historical averages, and expectations are low—which may explain the muted reaction.
If any company can buck that trend, it’s likely to be Apple—which reports results Thursday. But the tech giant’s 51% gains so far in 2023 mean it needs to produce something special.
The broader stock market also needs something out of the ordinary and a bit of luck, to keep the momentum going.
—Callum Keown
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BP Joins Exxon and Chevron in Oil Profit Slump
BP joined its peers Shell, Exxon, and Chevron in reporting a sharp profit drop in the second quarter due to lower oil and gas prices. This comes amid global oil prices rallying on optimism that recession fears have been overdone.
- BP’s underlying replacement cost profit—the company’s definition of net income—fell 69% to $2.6 billion, or 14.77 cents per share in the second quarter. Analysts were expecting net income of $3.4 billion, 19 cents per share. The British oil giant raised its dividend by 10% Tuesday and announced a new $1.5 billion share buyback program.
- The company’s earnings confirmed the industry trend of tumbling profits, compared with the same period last year when energy prices were soaring following Russia’s invasion of Ukraine. In recent earnings Exxon profit tumbled 55%, Shell dropped 56%, and Chevron declined 47%.
- “The BP share price, much like its peer Shell, has probably seen the highs of the year, given how far energy prices have fallen over the past 12 months,” CMC Markets analyst Michael Hewson said early Tuesday.
What’s Next: The strong run in global oil prices looks set to continue. The front-month nymex crude (WTI) is up 15.22% this month, according to Dow Jones market data. Statistically when oil rises at least 10% in the month of July there are average gains of 39.89% for oil over the second half of the year.
—Callum Keown and Rupert Steiner
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SoFi Technologies Gets a Jolt from Personal Loans, Deposits
SoFi Technologies
shares soared to a new 52-week high after beating second-quarter expectations, as a bump in home-loan and personal loan volumes helped overcome uncertainty about the future of federal student loan repayments. Shares jumped more than 20%.
- SoFi reported a narrower-than-expected loss, saying deposits rose 26% and personal-loan origination volume grew 51%, while student-loan volume fell 1%. CEO Anthony Noto told Barron’s in July the company expects “ample” demand from borrowers trying to refinance their loans.
- The fintech company now expects 2023 adjusted net revenue of $1.97 billion to $2.03 billion, higher than its previous guidance. Management continues to see student loan refinancings remaining around current levels until September and then rise. The company doesn’t expect a return to prepandemic levels this year.
- The Biden administration continues to pursue other ways to provide relief on federal student loans. Borrowers can start enrolling in a new income-driven repayment plan, which lowers the monthly amount they would pay from discretionary income to 5% from 10%.
- Borrowers can apply at the Education Department website. The administration is offering a 12-month “on ramp” to repayment, from Oct. 1, 2023 to Sept. 30, 2024, during which missed payments won’t be marked delinquent, hurt credit reports or trigger debt-collection agencies.
What’s Next: Resuming federal student loan repayments in October will subtract about $9 billion a month from consumer spending, or $100 billion a year, said Apollo Global Management chief economist Torsten Sløk.
—Janet H. Cho and Emily Dattilo
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Travel Stocks Gain Attention as Americans Take Time Off
As Americans maintain their summer travel comeback after the Covid-19 pandemic, website traffic to major hotel websites ticked up more than 5% in May and early June, analytics firm SimilarWeb said. That’s a bullish sign for hotel stocks, according to Raymond James analyst William Crow.
-
Crow’s favorite stocks include
Hilton Worldwide Holdings,
which has a pipeline of new growth, and
Ryman Hospitality Properties,
the locations of which in high-demand places such as Orlando and Denver are recording increased supply but few direct rivals in group travel. - Crow warned that headwinds for hotels include higher operating and nonoperating costs (such as wages, property insurance, and property taxes), higher rates, slowing leisure demand, slow-to-recover business transient demand, and potential labor union issues.
-
Oppenheimer analyst Jed Kelly raised his price targets on
Expedia
Group, and
Booking Holdings,
rating both travel booking stocks a buy-equivalent. He believes Expedia will benefit from “better hotel trends, operational improvements, and attractive valuation,” and Booking will “generate stable growth and margin expansion.” -
But he sidelined
Airbnb
stock for its higher valuation, and
Tripadvisor
because of increased competition for its Viator travel booking brand and the threat of artificial intelligence in trip planning.
What’s Next: Unesco wants to add Venice to its list of World Heritage sites in danger from “irreversible” damage from climate change, mass tourism, and insufficient efforts by Italian officials to address ongoing issues. The recommendation could be adopted by UNESCO’s World Heritage Committee in Riyadh in September.
—Teresa Rivas and Janet H. Cho
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Arista Networks Beats Expectations and Signals Growth
Arista Networks
shares traded sharply higher after the data-center-networking hardware provider posted second-quarter results that were better than analysts had feared. Shares rose 14% in late trading Monday.
-
Arista shares fell last week on concerns about a potential slowdown in data center infrastructure demand, following disappointing results from rival
Juniper Networks,
and signs of moderating spending from Arista’s two biggest customers,
Microsoft
and Facebook’s
Meta Platforms. - For the June quarter, revenue rose 8% to $1.46 billion, ahead of Arista’s guidance, and Wall Street’s consensus estimate. Chief Financial Officer Ita Brennan said despite shorter lead times and reduced visibility, the company is executing well. It now sees revenue growth of more than 30% this year from last year.
-
Database information provider
ZoomInfo
cut its September quarter guidance after second-quarter revenue rose 16% but came in slightly below expectations. It now sees September-quarter revenue of $309 million to $312 million, which is lower than Wall Street estimates.
What’s Next: For the September quarter, Arista expects revenue of $1.45 billion to $1.5 billion, beating Wall Street expectations. Arista projects third-quarter adjusted gross margin of 62%, and adjusted operating margin of 41%.
—Eric J. Savitz and Janet H. Cho
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There’s Another $1 Billion Lottery Jackpot Up for Grabs
There’s yet another $1 billion multistate lottery jackpot up for grabs. The Mega Millions grand prize—actually estimated around $1.05 billion—is the fourth-largest in that lottery’s history. The drawing is at 11 p.m. Eastern time tonight.
- Lotteries have been getting bigger since 2016, when multistate lottery operators made shifts that lowered the odds and encouraged big jackpots. There have been seven claimed winning tickets of $1 billion or more since then.
- The person or group who won the $1.08 billion jackpot in a July Powerball lottery hasn’t come forward, perhaps because California, the place where the sole ticket with all the winning numbers hit, requires winners to identify themselves by their full names. New York has the same rule, but state lawmakers want a law to allow winners to remain anonymous.
- At least eight states already allow anonymity, including Delaware, Kansas, Maryland, Mississippi, Montana, New Jersey, South Carolina, and Wyoming. Eric Jaffe, a lawyer who has arranged LLCs for New York winners to shield their identities, said safety is an issue. “The risk is just too great.”
- It’s the second time this year that Mega Millions has grown to more than $1 billion. Powerball, also sold in 45 states and Washington, D.C., grew to more than $2 billion before a winning ticket was drawn last November.
What’s Next: If a winning ticket is drawn tonight, there’s an option to take the 30-year annuity payout with an initial payment of roughly $15 million, or a lump sum, estimated at around $528 million.
—Liz Moyer
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—Newsletter edited by Liz Moyer, Patrick O’Donnell, Rupert Steiner
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