August 6, 2025

 

(GOOD EARNINGS VERSUS BAD DATA)

 

August 6, 2025

 

Hello everyone

 

As we have seen in the past week, earnings have been strong; however, economic data have not so much.  As August is usually a time to take a vacation in the northern hemisphere, the markets will most probably pause and take a breath, and retrace for a while.

A stronger-than-expected second-quarter earnings season is on pace to lift collective S&P500 profits by around 11.2% to $555 billion, according to data collected by LSEG.  That’s a $20 billion improvement from the start of the reporting period and largely powered by gains in artificial intelligence and financials.

Around 80% of the 330 companies that have reported so far have topped Wall Street’s forecasts, and the full-year earnings target has risen modestly higher to around $265 per share.

Also noteworthy is the rate of upward EPS estimate revisions to the upside.  Loi Calvasina, head of U.S. equity strategy at RBC Capital Markets, showed that this had moved up from the mid-50% range, where it had been stuck in the past few weeks to more than 61%. Furthermore, Calvasina said that the percentage of companies issuing positive guidance also moved up for the month of July as several companies adjusted their tariff assumptions.

This, of course, stands in stark contrast to the economic data released last week.  A weak jobs report jarred the market last Friday.  Consumer spending has also flatlined, construction and manufacturing are contracting, and employment is set to continue falling.

Additionally, the President’s efforts to slash government spending and reduce the federal workforce will also act as a drag on growth prospects.

So, we literally can interpret the landscape as a tug of war between the economic drag of tariffs and U.S. corporate earnings strength.

If we look at August and September – those two months generally produce returns of around -0.7%, according to Truist, compared with an average gain of around 0.7% for the other months of the year.  In other words, they are usually not great months for the market.

And we know what that means.  The markets are ripe for a modest reversal. According to Deutsche Bank strategist Parag Thatte, pullbacks of 5% or more have occurred every three to four months on average.

After that August pullback, most strategists believe that the markets should continue higher.

Most of the Magnificent Seven have already reported strong results; therefore, it would be reasonable to conclude that these results would probably go a long way in reducing downside pressure on the market overall. 

 

QI CORNER

Tommy Wennerstierna (Biohacker & Cognitive Analytics)

 

 

MY CORNER

 

 

This is a copy of a photo I found that goes way back to the 1970’s.  I am with my best friend, Kathy, and her brother, Christopher.  We went on a joy flight that day over the Gold Coast & hinterland.  Kathy and I are around 15 or 16 years old.  (I have been friends with her since we were 12 years old).  By the way, those shorts I am wearing – I still have them, and I can still get into them – just!  (The 70’s & 80’s = a fun time, when people actually spoke to each other).

 

SOMETHING TO THINK ABOUT

 

 

Cheers

Jacquie