• The second quarter earnings season kicks off in the coming week, with reports from JPMorgan Chase, Bank of America and other major financial firms.
• Profits on the S&P 500 are expected to rise 65%, compared to a year ago, when the economy was shut down due to the pandemic and business stopped.
• The consumer price index is released on Tuesday and retail sales are expected on Friday.

The second quarter earnings season kicks off in the week ahead and stunning results could validate a market that continues to easily shake all worries on its steady march to hit record after record high.

Second-quarter profits for S&P 500 companies are expected to be up 65% from the same quarter a year ago in the depths of the pandemic, according to Refinitiv. Growth will be driven by an increase of nearly 570% in profits for manufacturers, one of the sectors hardest hit during the pandemic.

“The second quarter could be as good as it gets for economic growth,” said Callie Bost, senior investment strategist at Ally Invest. “Earnings growth could slow down, but analysts still expect double-digit earnings growth from S&P over the next two quarters. It is crucial not to lose confidence in the market just because the most growth is growing. The strong economy may be behind us. “

The S&P 500 hit a new record on Friday after a slight setback on Thursday. Banks and other actions linked to an economic recovery have led the way. Friday’s gain pushed the benchmark into the green for the week and took its 2021 gain above 16%.

The financial sector begins the earnings season with reports from JPMorgan Chase and Goldman Sachs on Tuesday. Bank of America, Citigroup and Wells Fargo report Wednesday, and Morgan Stanley and Truist report Thursday.

The banking sector is expected to deliver spectacular results for the second quarter, with S&P 500 financial sector profits doubling year over year, according to Refinitiv. The big banks recently announced that they would increase their dividend payments after the Federal Reserve approved the lenders as the 23 passed the central bank’s stress test.

Bank stocks led Thursday’s sale on Wall Street as some investors took bets in the face of a surprising drop in Treasury yields. They then immediately retaliated on Friday. Strong earnings could help stabilize the sector which has swirled amid mounting concerns over slowing growth.

Big income numbers to come

Among other sectors, consumer discretionary firms are also expected to experience a strong earnings comeback, with earnings up 271%, according to Refinitiv. Energy companies are expected to see profits rebound 225%, and materials are expected to experience profit growth of 115%. Technology lags behind these sectors with only a 31.6% gain. Utilities are expected to see their profits drop 0.9%.

“Once you get past peak economic growth as well as earnings growth, you get higher levels of volatility,” said Matt Stucky, portfolio manager, equities, at Northwestern Mutual Wealth Management Co. “We believe still that the path of least resistance is higher when it comes to stocks, but with more volatility than we have experienced. “

He said he expects stocks to continue to make gains but grow at a much more normal level. “There are fundamental reasons to be optimistic about the market next year,” Stucky said. He said profits are expected to be strong and companies that can pass on higher costs will raise their prices.

Inflation

There is also some important data to come, in particular the Consumer Price Index on Tuesday. CPI inflation rose at a higher than expected annual rate of 5% in May, and June could also be hot. The Fed has said it will allow inflation to exceed its target level of 2% and monitor an average rate of inflation.

“I think all the inflation numbers are going to take on increased importance,” said Jim Caron, head of global macro strategy at Morgan Stanley Investment Management. “It’s not a question of whether it is going to fall. It’s about whether it is going to fall fast enough for the Fed to remain patient. If it just lasts at a high level, It’s not good.”

All eyes will be on the reaction of the 10-year Treasury yield to the data as the stock market has been guided by the bond market for most of the past week. As the 10-year yield plunged to 1.25% on Thursday, the lowest since February, the equity market fell, believing bond investors were signaling that a global economic slowdown could be ahead. As yields rallied on Friday, so did stock markets.

Other data includes the producer price index on Wednesday and June retail sales on Friday.

Calendar for the upcoming week

Tuesday

Earnings: JPMorgan Chase, Goldman Sachs, PepsiCo, Fastenal, First Republic Bank

8:30 am IPC

2:00 p.m. Federal budget

Wednesday

Earnings: Wells Fargo, Citigroup, Bank of America, PNC Financial, Delta Air Lines, BlackRock, Infosys

8:30 am PPI

2:00 p.m. Beige Book

Thursday

Earnings: Morgan Stanley, UnitedHealth, US Bancorp, Truist Financial, Bank of NY Mellon, Cintas, Alcoa, Progressive

8:30 am First jobless claims

8:30 am Philadelphia Fed

8:30 a.m. Empire Manufacturing Index

8:30 am Import price

9:15 am Industrial production and capacity utilization

Friday

Earnings: LM Ericsson, State Street, Kansas City South

8:30 am Retail sales

10:00 am: University of Michigan consumer sentiment

10:00 am Business inventories

4:00 p.m. ICT data