Morning Notes — Next Two Weeks

SPX: This week marks the peak of Q2 earnings season with ~38% of S&P 500 companies scheduled to report. About 25% of the S&P 500 have already reported with 81% beating consensus vs the 5-year average beat rate of 72%. The average earnings surprise thus far is +11.5% vs the 5-year average of +4.7%, but markets are mostly focused on uncertainty given a recent leveling off in US high frequency indicators (Google mobility/credit card spending) and an up-tick in last week’s jobless claims data. Of course, the apparent loss in data momentum can be linked to reduced mobility as a result of increased case counts in current US hotspots (AZ, FL, TX and CA) where the most recent HHS data now suggests a potential peak in COVID-related hospitalizations. The apparent stalling out in data momentum should also be viewed in context with the extremely strong starting point from May/June and weaker activity data over the next ~2 weeks may get a pass. The most important US activity indicators over the next few weeks include weekly jobless claims this Thursday, retail sales on Tuesday 8/4, weekly claims on Thursday 8/6 and July payroll data on Friday 8/7.

Contrarian: Fund flows, hedge fund beta and CTA futures all show equity positioning remains below-average levels despite the ~40% retracement from the March 23 low. At the same time, bearish equity sentiment from individual investors remains elevated with the 50, 100 and 200 day moving averages of AAII bearish sentiment at all-time record highs. Data like this continues to provide a cushion for equities and keeps the balance of risks aimed higher.