Q2 Earnings Season Kicks Off: What to Watch From Big Banks, Pharma, and Key Economic Data

The second quarter earnings season is set to dominate financial news this week, with major banks and a key pharmaceutical company reporting results. Alongside corporate performance updates, a series of crucial economic data releases will provide fresh insights into the health of the U.S. economy and potentially influence Federal Reserve policy expectations. This week’s reports are critical for understanding market momentum and economic trends following a dynamic quarter.

Key Takeaways:

• Major banks (BlackRock, Wells Fargo, Goldman Sachs) report Q2 earnings, offering insights into financial markets, lending activity, and dealmaking.
• Abbott Laboratories provides an update on its fast-growing diabetes and medical device segments, alongside nutrition and diagnostics trends.
• Key economic indicators including CPI, PPI, Retail Sales, and Housing Starts will shed light on inflation, consumer spending, and housing market dynamics, influencing interest rate outlooks.

Earnings Season Kicks Off: Financials and Healthcare in Focus

The spotlight is firmly on corporate earnings this week, starting with major players in the financial sector and a significant healthcare company. Investors will be scrutinizing these reports for clues about sector performance, management outlooks, and the broader economic environment.

BlackRock (BLK)

As the world’s largest asset manager, BlackRock’s results offer insights into global fund flows and investor sentiment during Q2’s market rally. Key areas of focus will include the dynamics of its management fee revenue and updates on integrating recent acquisitions like Preqin and Global Infrastructure Partners. Commentary on the HPS Investment Partners and upcoming ElmTree Funds acquisitions, particularly their role in the new Private Financing Solutions group, will also be important for understanding strategic growth areas.

Beyond the numbers, management’s perspective on the economy, geopolitical risks, and the state of public and private markets will be crucial for shaping the overall market outlook.

• Street Expects: Earnings of $10.78 per share on revenue of $5.46 billion.

Wells Fargo (WFC)

Bank earnings are vital for gauging the broader economic health due to their extensive interactions with both consumers and businesses. For Wells Fargo, specific attention will be paid to the impact of the Federal Reserve lifting its asset cap, which, combined with industry deregulation, provides greater flexibility for lending.

Investors will be watching for management commentary on whether this, coupled with a “higher for longer” interest rate environment, translates into a better outlook for net interest income (the profit difference between loan interest earned and deposit interest paid). Updates on the firm’s long-term target for Return on Tangible Common Equity (ROTCE) and plans for capital allocation, including buybacks and dividends, following a reduced minimum capital requirement (CET1 ratio), will also be key.

• Street Expects: Earnings of $1.41 per share on revenue of $20.768 billion.

Investment analyst talking about market strategy

Goldman Sachs (GS)

For Goldman Sachs, the focus is squarely on investment banking performance. The recent uptick in Initial Public Offerings (IPOs) and Mergers & Acquisitions (M&A) activity raises questions about how significantly the firm is benefiting from this market resurgence. Management’s forecast for dealmaking in the second half of the year is particularly relevant, especially given its strategic importance to Goldman Sachs’ business model. Updates following the strong results from the Fed’s annual stress test, which led to a reduced minimum capital requirement, will also be of interest regarding potential capital returns.

• Street Expects: Earnings of $9.53 per share on revenue of $13.397 billion.

Abbott Laboratories (ABT)

In the healthcare sector, investors will be watching Abbott Laboratories closely. A primary driver for the company’s largest segment, Medical Devices, is the performance of its diabetes portfolio, particularly sales of the FreeStyle Libre continuous glucose monitors. This momentum is a key indicator of the segment’s health.

Commentary on the rollout of the recently approved Volt PFA System, used for treating abnormal heart rhythms, will also be important for the Medical Devices unit. In Nutrition, analysts will listen for updates on market share recovery efforts. Finally, the Diagnostics unit’s performance, specifically any improvement after facing headwinds from China’s healthcare cost control strategy last quarter, will be under scrutiny.

• Street Expects: Earnings of $1.25 per share on revenue of $11.068 billion.

Economic Data Insights On Deck

Beyond corporate reports, this week features several critical economic data releases that will provide a clearer picture of inflation trends, consumer behavior, and the housing market. These data points are closely watched by the Federal Reserve and will heavily influence expectations for future interest rate decisions.

Consumer Price Index (CPI)

Released on Tuesday, the June CPI report is a crucial measure of inflation at the consumer level. Investors will analyze this report to gauge how successful the Fed has been in bringing inflation closer to its target and what this might mean for the timing and number of potential rate cuts in 2025. A key component to watch within the CPI is shelter costs, which have remained stubbornly high and present a challenge for the Fed’s goal of lowering inflation without significantly increasing unemployment.

Producer Price Index (PPI)

Following on Wednesday, the June PPI measures inflation from the perspective of producers or wholesalers. While not as widely reported as CPI, the PPI provides valuable insight into the costs businesses face for goods and services. Changes in producer prices can eventually filter down to consumer prices, making it a forward-looking indicator for inflation pressures.

Chart showing market reaction to economic news

Retail Sales

The June Retail Sales report, due Thursday, offers a snapshot of consumer spending activity. As private consumption accounts for roughly two-thirds of U.S. Gross Domestic Product (GDP), the strength of the consumer is a critical factor for continued economic growth. A strong retail sales number indicates consumer confidence and spending power, supporting the economic expansion, while a weak number could signal potential headwinds.

Housing Starts and Building Permits

Concluding the week’s economic data releases on Friday is the June report on Housing Starts and Building Permits. This data provides insight into the pace of new home construction. Increased housing supply is seen as necessary to help stabilize or reduce shelter costs, which, as noted, are a significant factor in overall inflation measures. The report will indicate whether construction activity is picking up sufficiently to address housing market supply pressures.

The Week Ahead: A Catalyst for Markets?

This week is poised to be a significant one for markets, combining detailed corporate performance reports from major sector leaders with crucial data on the economy’s health. The earnings results will reveal how companies fared in the recent market environment and their outlooks for the remainder of the year, while the economic data will provide fresh evidence on inflation trends and consumer strength, directly impacting interest rate expectations. Investors will be watching closely to see if this influx of information provides clear direction for the market heading into the second half of 2024.