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Good morning.
U.S. futures are mixed, but there’s plenty of investor enthusiasm in Europe and Asia today.
Chinese stocks are on the rise even as Delta cases sweep across the country. The latest outbreaks are even causing economists to downgrade Chinese growth in the quarters ahead.
Other than Delta, the big story is corporate earnings. Companies continue to surprise on the upside. Lyft and Caesars Entertainment were the latest…I dig into the batch of rosy numbers in today’s essay.
Over in the crypto corner, Bitcoin is again in decline as regulators continue to raise trading alarm bells. Bitcoin is now down more than 10 percent since it briefly crested above $42,000 this weekend.
Let’s see what else is moving the markets.
Markets update
Asia
- Asian investors are finally catching a break. The region’s major indexes are mostly higher in afternoon trading with the Hang Seng up nearly 1%.
- Alibaba shares in Hong Kong were off by nearly 0.3% after the e-commerce giant on Tuesday reported a rare top-line miss as fears grow that Beijing is crimping its growth.
- Shares in SoftBank were off 1.1% on some unexpected merger news. SoftBank agreed last year to sell its British chip designer Arm to Nvidia, a deal that the U.K. government reportedly may now block on security grounds.
Europe
- The European bourses were in the green at the start with the Stoxx Europe 600 up 0.5% in early trading. Tech and auto stocks are leading the way higher.
- BMW fell 5% on Tuesday after the German car company delivered a surprisingly dreary forecast that had investors and analysts doing a double-take.
- Swiss pharma giant Roche is up 0.3% in early trading on Wednesday as news surfaces SoftBank has been snapping up shares, attracted by its COVID-19 testing business.
U.S.
- U.S. futures are mixed this morning—Nasdaq is up; the others are down. That’s after the S&P 500 closed at a new all-time high on Tuesday.
- One of yesterday’s big winners was Robinhood, rocketing up 24% to close above its IPO price. According to CNBC, the rally is being triggered by, yep, retail traders. This morning, it’s up a further 11.7% in pre-market trading.
Elsewhere
- Gold is higher, trading around $1,820/ounce.
- The dollar is down as its two-week retreat continues.
- Crude is lower too with Brent trading around $72/barrel.
- Bitcoin continues its slide, trading below $38,000. SEC chief Gary Gensler’s latest “Wild West” critique isn’t going down well with crypto traders.
***
“Positive surprise”
We’re just beyond the halfway-point for earnings season, so it’s as good a time as any to take the temperature on the overall health of corporates, and on stocks.
The big take-away: Companies had a killer Q2.
According to FactSet’s senior earnings analyst, John Butters, as of Friday, of the S&P 500 firms that have reported, nearly nine in ten (88 percent) had delivered a “positive EPS surprise for Q2.” (As of Friday, 59 percent of S&P firms had reported, again per FactSet.)
“If 88% is the final percentage,” Butters continues, “it will mark the highest percentage of S&P 500 companies reporting positive EPS surprises since FactSet began tracking this metric in 2008.”
What’s so impressive about that is the nutty business environment Fortune 500 firms were operating in at the start of the year. Inflation was rising, fueled by volatile commodity prices and soaring shipping rates. Oh, and there’s a global chips shortage. Companies have been in a real bind this year about how to manage these headwinds. Do they eat the higher input costs, or pass them on to customers?
Despite all that, companies are reporting that their margins are holding up well, and that they will continue to do so in the near term.
To wit, FactSet notes that 29 S&P stocks have reported positive forward EPS guidance for Q3, verses 19 firms revealing a downgrade.
Those are solid fundamentals, which explains why the S&P continues to notch up one all-time-high after another. The benchmark index gained 2.4% in July and is up nearly 18 percent year-to-date.
Clearly, investors are in a giving mood. “To date,” Butters says, “the market is rewarding positive earnings surprises more than average and punishing negative earnings surprises less than average.”
Earnings season will wrap up in the coming weeks. And then we should start to see how analysts really feel about the stock market. If we start to see a bevy of year-end S&P 500 price-target upgrades, we can probably look back on Q2 as the big reason.
***
Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com
As always, you can write to bullsheet@fortune.com or reply to this email with suggestions and feedback.
Today's read
Delta waves in India and the U.K. have already receded. Could the same happen in the U.S.?—Fortune
These are the stocks that stand to benefit most from the $1.2 trillion infrastructure bill—Fortune
The red-hot IPO market just set another record—Fortune
As SPAC Creators Get Rich, How Incentives Are Shared Remains Murky—Wall Street Journal
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Market candy
Quote of the day
One of the challenges in the crypto trading space has been market manipulation.
That's Nasdaq CEO Adena Friedman who spoke to Fortune's Emma Hinchliffe in a wide-ranging interview in which they touched on meme stocks, SPACs, crypto trading and the push to get companies to diversify their boards, a move that's generating a surprising bit of pushback.
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