Microsoft, Alphabet and Core PCE: Global Week Ahead – Zacks Investment Research

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In the Global Week Ahead, the peak Northern Hemisphere holiday season gears up.

But school’s not quite out for summer — inside the world’s financial markets.

Stock traders get:

Both bond and stock traders get:

A snap Spanish election happened on Sunday.

Next are Reuters’ five world market themes, reordered for equity traders—

(1) Yes, It’s Still Earnings Season. Both in the USA and Europe

European quarterly earnings are starting to trickle in. The season will be a crucial one, with the STOXX 600 share index (STOXX) up about +8% year to date.

The rally has sputtered in July ahead of what Barclays describes as a “make it or break it” quarterly reporting season.

Second-quarter earnings are expected to decrease -9.2% from a year earlier, according to I/B/E/S data from Refinitiv, with aggregate earnings likely to be weighed down by poor performance from energy companies.

Stocks rallied earlier this year as investors, who were mostly bearish about Europe, switched their positions as global growth continued to defy expectations.

That is a macroeconomic story rather than an earnings narrative, which makes European equities vulnerable to companies missing profit targets.

A better-than-expected outcome, on the other hand, could fuel another bull run.

(2) On Wednesday, the FOMC Likely Hikes 25 Basis Points

And just like that, the next Federal Reserve meeting is right around the corner.

U.S. inflation is cooling but markets expect one more rate hike on July 26th.

The more interesting question is whether Chair Jerome Powell will signal the Fed is more confident inflation can cool further while growth stays resilient, meaning the most aggressive rate hiking cycle in decades is nearing an end.

Signs that the Fed is unlikely to raise rates much further would, in theory, keep the wind in the sails of a buoyant Wall Street, while the dollar’s tumble will likely continue.

Also in focus are earnings from some of the massive tech and growth stocks that have led markets higher this year.

Among them are Microsoft (MSFT Free Report) and Alphabet (GOOGL Free Report) , which report on July 25th.

(3) On Thursday, the ECB Announces Its Policy Rates Decision

Before they go on their summer break, ECB policymakers have a well-flagged rate hike to deliver.

That will come on Thursday, with the key deposit rate tipped to rise a quarter point to 3.75%.

ECB chief Christine Lagarde will no doubt be pressed for clarity on what happens in September, and economists are divided over whether there will be another rate increase or pause.

Note, hawk Klaas Knot says any move beyond July is “by no means a certainty.”

Underlying inflation, a key focus for the ECB, remains high, but economic growth is weakening. The previously resilient services sector barely grew in June.

The July PMI snapshot of business activity, out globally in coming days, should provide some further insights, as should the ECB’s latest bank lending survey.

Rate-setters’ summer reading list just got longer.

(4) Also on Thursday, the Bank of Japan (BoJ) Announces Policy Rate Decisions

The Bank of Japan wants to promote communication with markets, but something may have been lost in translation.

Comments from top rate-setters have tied investors in knots before a keenly anticipated two-day policy meeting starting on Thursday.

Governor Kazuo Ueda’s message of “steady as she goes” on stimulus, including yield curve control (YCC), was seen, by some, to have been undone by recent remarks by deputy Shinichi Uchida.

Uchida says he “strongly acknowledges” YCC’s negative impact, which hawks took as a hint of an imminent raising of the 0.5% ceiling for 10-year bond yields.

Ueda then again backed continued easing in its current form and data on Friday showed inflation may have peaked.

The benchmark yield has swung from 0.4% to a four-month high of 0.485% over the past two weeks, with the market dividing itself sharply into two camps.

That creates plenty of opportunity for another jolting BOJ surprise.

(5) On Sunday, Spain Voted in a Snap Election

Spain voted in a snap election on Sunday.

No party won sufficient support in Spain’s election on Sunday to form a government, leaving the country to face weeks of contentious negotiations or potentially new elections.

Key for markets is how quickly the winner can form a government — it’s a cliche that equity markets hate uncertainty — but it’s said for a reason.

Also in focus?

Whether pressure on the main parties to cut taxes or increase spending worsens Spain’s finances.

High debt above 100% of GDP, a slowing economy and tighter EU fiscal rules coming into force in 2024 are concentrating minds.

Stock-pickers are also keeping an eye on the energy sector, where the two main parties have different priorities, and financials, with the outlook for Spain’s temporary banking levy in doubt.

Zacks #1 Rank (STRONG BUY) Stocks

Let’s return to the large-cap Info Tech space. But look into less-known names.

(1) Synopsis (SNPS Free Report) : This is a Computer Software) industry player. The stock price is at $452. There is a current market cap of $67.1B.

I see a Zacks Value score of F, a Zacks Growth score of C and a Zacks Momentum score of F.

Zacks Investment Research
Image Source: Zacks Investment Research
Synopsys is a vendor of electronic design automation (EDA) software to the semiconductor and electronics industries.

The company offers a full suite of products used in the logic synthesis and functional verification phases of chip design, including a broad array of reusable design building blocks. It also sells physical synthesis and physical design products as well as physical verification products.
The company’s products are used to design a chip, from concept to the point of delivery to the manufacturer for fabrication.

Synopsis provides software and hardware, which are used to develop electronic systems that incorporate chips.

Additionally, the company provides Intellectual Property (IP) used in semiconductor design and manufacturing to simplify the design process and accelerate time-to-market for its customers.
Synopsis reports revenues in three segments, namely Time-Based Products, Upfront Products and Maintenance and Service.
Time-Based Products (59% of fiscal 2022 revenues): Segment revenues are recognized as Technology Subscription License (TSL) revenues. Under this segment, the company recognizes revenues from fees over the period of the license or as and when the installments are paid by the customer, whichever is later.
Upfront Products (24%): These revenues are recognized as Term License revenues. Under this segment, the company recognizes revenues from term licenses in full after the completion of the shipment of the software, wherein at least 75% of the license fee is paid within a year of shipment, after fulfilling all other revenue recognition criteria.
Maintenance and Service (17%): Under this segment revenues come from maintenance fees that are generated over the maintenance period; along with revenues generated from professional service and training fees.

The company conducts its business across four geographic regions namely: North America (47% of fiscal 2022 revenues), China (16%), Europe (10%), Korea (10%) and others (17%). Synopsys’ competitors include EDA vendors like Cadence Design Systems Inc. and Mentor Graphics Corp.

(2) NetEase (NTES Free Report) : This is a $102 stock in the Internet Software & Services industry.

This company’s stock currently has a market cap of $67.2B.

I see a Zacks Value score of C, a Zacks Growth score of C, and a Zacks Momentum score of A.

Zacks Investment Research
Image Source: Zacks Investment Research
NetEase, Inc. is an Internet technology company engaged in the development of applications, services and other technologies for the Internet in China.

It provides online gaming services that include in-house developed massively multi-player online role-playing games and licensed titles.

NetEase also provides online advertising, community services, entertainment content, free e-mail services and micro-blogging services.

The Company also offers wireless value-added services such as news and information content, matchmaking services, music and photos from the web that are sent over SMS, MMS, WAP, IVR and Color Ring-back Tone technologies.

NetEase, Inc., formerly known as, Inc., is based in Beijing, the People’s Republic of China.

(3) Palantir Technologies (PLTR Free Report) : This is a $17 stock found in the Technology Services industry. There is a market cap of $36.2B.

I see a Zacks Value score of F, a Zacks Growth score of B and a Zacks Momentum score of F.

Zacks Investment Research
Image Source: Zacks Investment Research
Palantir Technologies Inc. builds and deploys software platforms for the intelligence community principally in the United States.

Palantir Technologies Inc. is based in Denver, CO.

Key Global Macro

Don’t forget this: The core PCE inflation rate for June comes out on Friday. This is the Fed’s preferred consumer inflation metric.

On Monday, the Jibun Bank manufacturing PMI for Japan in July comes out. Prior month was 49.8.

The HCOB manufacturing PMI for the Euro Zone in July is out. I see a prior 43.4.

The HCOB services PMI for the Euro Zone in July is also out. I see a prior 52.0.

The S&P Global Manufacturing PMI for July is out. I see a prior 46.3.

On Tuesday, there is an ECB Bank Lending Survey out.

The U.S. Housing Price Index for May is out. The prior m/m reading was +0.7%.

On Wednesday, the Australian RBA Trimmed Mean CPI for Q2 is out. The prior reading was +6.6% y/y.

U.S. new homes sales for June come out. I see a prior 0.763M.

The FOMC policy rate decision comes out in the early afternoon, in EST terms. There is a Powell presser that follows the statement too.

On Thursday, the ECB policy rates decisions come out. Main refi is at 4.0%.

On Friday, the BoJ policy rate decision comes out. There is a press conference here too.

Friday Key Note: The Fed’s preferred consumer inflation measure, the core Personal Consumption Expenditure (core PCE) rate for June comes out. The prior reading was +4.6% y/y.


I will finish up with the in-house Zacks earnings narratives.

On July 19th, Zacks Research Director Sheraz Mian updated on Q2 earnings —

(1) We are off to a positive start to the Q2 earnings season.

Most companies not only beating estimates, but also providing reassuring enough guidance for the coming periods.

(2) For the 50 S&P500 companies that have reported Q2 results?

Total earnings are up +4.4% from the same period last year on +8.6% higher revenues.
82% beat EPS estimates and 66% beat revenue estimates.

(3) Given the below-average magnitude of negative revisions to Q2 estimates — ahead of the start of the reporting cycle?

This above-average EPS beats percentage can be interpreted as a favorable turn in underlying earnings trends.

(4) The Q2-23 earnings decline would follow the -3.4% decline in Q1-23 and the -5.4% drop in Q4-22.

The expectation is for Q3-23 earnings to be the last period of declines.

Growth resumes from Q4-23 onwards.

Happy trading and investing!

John Blank
Zacks Chief Equity Strategist and Economist
Microsoft Corporation (MSFT) – free report >>
NetEase, Inc. (NTES) – free report >>
Synopsys, Inc. (SNPS) – free report >>
Alphabet Inc. (GOOGL) – free report >>
Palantir Technologies Inc. (PLTR) – free report >>
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