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Forget earnings. The smart money is looking to the future



Analysts anticipate that earnings growth will be essentially flat compared to last year, just as it was in the first quarter. There is still hope for a rebound in the second half of the year. But that optimism depends to a large extent on the orientation of the companies in the coming weeks.

"The risk is that the company's guidance is negative," said John Normand, head of fundamental cross-asset strategy at JPMorgan Chase (JPM). "It's not just about real profits."

Executives have worked hard to handle expectations before their official announcements.

"Because of the way the profit game is played, companies guide analysts to a low level," said Nick Raich, CEO of The Earnings Scout, a research firm. "Conservative estimates [then] pave the way for a profit hit. "

Companies have been particularly cautious this year due to the inevitable comparisons with 2018, when the US tax cuts. UU

But the imminent slowdown in global growth, exacerbated by trade tensions, is also forcing companies to control their prospects.

Daimler (DDAIF)For example, he warned of a fall in earnings in 2019 after withdrawals, legal problems and weak demand for automobiles contributed to an approximate second quarter.

Others may find themselves in a similar position. According to Raich, approximately 40% of the profits of the S & P 500 companies are made abroad.

When looking at the stock market, I would not know that profits are about to be weak. A possible rate cut by the Federal Reserve this month has sent US stocks to record levels, even when tariffs of hundreds of billions of dollars in goods from the United States and China remain in effect.

"The positive impact of lower borrowing costs on earnings will outweigh the negative impact of tariffs," Raich said.

But it is a precarious balance.

"The status quo is manageable as long as the Federal Reserve is declining," said Normand. "What I'm not so sure about is how much flexibility would be needed to compensate for another increase in rates."

In the immediate term, the biggest concern for the markets is the information about what follows. If the guidance is particularly bleak, stocks could fall by 5%, said Normand.

2. Libra Hearings: US lawmakers have many questions about Libra's cryptocurrency on Facebook. Next week, you will get some answers.

Facebook (full board) Executive David Marcus, who heads the project, plans to testify before the Senate on Tuesday and the House of Representatives on Wednesday.

The technology company is launching Libra as a stable and universally accepted cryptocurrency that will make it easier to send money online and promote financial inclusion.

But regulators fear that the massive reach of Facebook will lead to a rapid adoption of digital money at a time when the sector is not regulated to a large extent. They also worry about Facebook's reputation for not protecting the user's data.

Facebook says it has met with regulators and has plans to protect user data and prevent financial crimes with Libra. The company also emphasized that it will not be the sole administrator of Libra, but will be managed by an independent organization.

Democrats on the House of Representatives committee who will question Marcus have asked Facebook to stop Libra's development until lawmakers have an opportunity to consider regulatory action. They may have points in common with President Donald Trump, who last week criticized Libra and said Facebook would need a license if it wanted to act as a bank.

3. Prime Day: Amazon (AMZN) Prime Day will return for the fifth time starting on Monday.

This year the discount event will last two days. Prime Day will feature more than 1 million offers worldwide, including what Amazon presumes will be "the greatest deals in history" on Amazon Music, Prime Video and Alexa-enabled devices.

Amazon, which raised $ 232 billion in sales last year, does not break down revenue into Prime Day. However, this year's global sales are expected to reach $ 5.8 billion, according to Coresight Research. Last year, Amazon generated $ 3.9 billion, according to the research firm.

"Without a doubt, Amazon Prime Day will be another successful event for Amazon, especially because it has increased in length and seems to be working even harder with suppliers to ensure agreements and volume," said Sucharita Kodali, an analyst at Forrester Research.

4. Next week:

Monday – China Q2 GDP; The first day begins; Citi (do) earnings
Tuesday – retail sales in the United States; ZEW economic sentiment index of Germany; JPMorgan Chase (JPM), Wells Fargo (WFC), Goldman Sachs (GS), Charles Schwab (SCHW), Johnson and Johnson (JNJ), United Airlines (UAL) earnings
Wednesday – Construction starts and permits in the United States; Eurozone inflation; Bank of America (BAC), eBay (EBAY), IBM (IBM), Netflix (NFLX) earnings; United States oil inventories
Thursday – inflation in Japan; Morgan Stanley (MRS), Philip Morris (P.M), Honeywell (HON), Microsoft (MSFT) earnings
FridayAmerican Express (AXP) Y Blackrock (BLK) earnings; Consumer sentiment at the University of Michigan

– Nathaniel Meyersohn and Clare Duffy contributed reporting.


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