The Week Ahead – July 11, 2022

Summary

The earnings season kicks off again with reports from PepsiCo, Delta Air Lines, and Taiwan Semiconductor before a wave of reports from major banks like JPMorgan Chase, Wells Fargo, U.S. Bancorp, and others.

Investors in the banking sector will be watching to see if the decline in mortgage originations and refinancings is offset by higher revenue from credit lines.

The corporate calendar for the week includes investor events for Dave & Buster’s Entertainment, Ferroglobe PLC, Suncor and Pure Cycle Corporation. Amazon Prime Day and competing online sales will dominate attention in the retail sector.

Inflation talk will also be front and center, with the consumer price index and producer price index reports both expected to be just as strong for June as they were for May.

Eyes Still on Inflation – CPI and PPI

The consumer price and producer price reports are both due. The CPI report is expected to show a 1.0% month-over-month and 8.7% year-over-year rise in prices for June. Core CPI is expected to have held steady from the previous month with a 0.6% gain.

Despite the strong headline numbers anticipated, JPMorgan thinks economic reopening inflationary pressures for certain service prices might have faltered somewhat in June.

Airline fares are expected to be flat following three consecutive double-digit increases. Lodging-away-from-home prices are also forecast to decline.

The PPI report is expected to show a 0.8% month-over-month rise for the second consecutive month, due in part to strong energy prices. Core PPI is forecast to increase 0.4% month-over-month.

Earnings

Earnings spotlight: Monday, July 11 – Greenbrier (GBX), PepsiCo, PriceSmart (PSMT).

Earnings spotlight: Tuesday, July 12 – AngioDynamics (NASDAQ:ANGO).

Earnings spotlight: Wednesday, July 13 – Delta Air Lines (DAL) and Fastenal (FAST).

Earnings spotlight: Thursday, July 14 – Taiwan Semiconductor Manufacturing (TSM), JPMorgan Chase (JPM), Morgan Stanley (NYSE:MS), and Conagra (CAG).

Earnings spotlight: Friday, July 15 – PNC Financial (PNC), BlackRock (NYSE:BLK), Citigroup (C), PNC (PNC), State Street (STT), Wells Fargo (WFC), U.S. Bancorp (USB) and UnitedHealth (UNH).

IPO Watch

Nano Labs (NA) is expected to start trading on July 12. Nano Labs makes ASIC chips for crypto mining machines and some metaverse-related computing applications.

COVID-19 test marketer Virax Biolans Group (NASDAQ:VRAX) is scheduled to debut on the market on July 14.

Dividends

Top-quality dividend stocks have historically declined less than the broad market during periods of economic downturn. While dividend payouts can be suspended or slashed during recessions, it was noted that even in the sharpest and deepest recession in modern history, S&P 500 dividends only fell by 3%.

Top Dividend Stocks During the Downturn: Johnson & Johnson (JNJ), Coca-Cola (KO), Colgate-Palmolive (NYSE:CL), Apple (AAPL), Costco Wholesale (COST), JPMorgan Chase (JPM), Nike (NKE), Procter & Gamble (PG), and PepsiCo (PEP).

WSO – Something to Consider

Watsco (NYSE:WSO) also gets attention this week as a stock that looks attractive on a valuation basis. The air conditioning distributor is called a stable business that features consistent earnings and sales, and should be attractive to investors looking to play defense while benefiting from the heat. Watsco (WSO) trades at 17.8X estimated 2023 earnings per share, which is a 14% premium to the 15.6X multiple of the S&P 500 Index, but Watsco is observed to be growing faster than most companies and usually trades at a premium of almost 50% to its five-year average.