As markets move into the summer period the US economy appears as resilient as ever which puts greater focus on the upcoming earnings season which kicks-off on 13 July.

The June non-farm payrolls report (7 July) came in weaker than expected for the first time in more than a year with 209,000 jobs added compared with consensus forecasts of 225,000. In addition, April and May was revised down by a combined 110,000.

However, unemployment remains at multi-decade lows and more worryingly for the Federal Reserve, wage growth came in higher than expected and remains elevated at an annualised rate of 4.4%.

To be consistent with the Fed’s 2% inflation target the consensus view is that wage growth needs to drop by another percentage point to 3.5%.

After the Fed paused in June, markets are pricing in a 92.4% chance of the Fed hiking rates by a quarter of a percentage point when it next meets on 26 July and a 72% chance of a hike in September, according to derivatives platform CME’s FedWatch tool.

As we write June’s consumer price index data was set to be released. The consensus expectation for core CPI which excludes volatile food and fuel prices is for a drop from 5.3% to 5% year on year. The following week retail sales for June are due to be unveiled on 18 July.

The big banks traditionally kick-off the earnings season but this time around PepsiCo (PRP:NYSE) and Delta Air Lines (DAL:NYSE) are due to report pre-market on 13 July.

JPMorgan Chase (JPM:NYSE), Citigroup (C:NYSE) and Wells Fargo (WFC:NYSE) and BlackRock (BLK:NYSE) report on 14 July.

Investors will be looking for signs of stricter lending practices following the mini-banking crisis in the spring set off by the failure of Silicon Valley Bank.

Consensus second quarter earnings for the S&P 500 are forecast to decline by 7.2% compared with a year ago, which would be the largest decline since the second quarter of 2020 (31.6%) according to FactSet.

Interestingly, more companies have guided positively coming into the earnings season than is usually the case. The information technology and industrials sectors account for more than half of
all firms issuing positive guidance according
to FactSet.

Looking further ahead analysts are projecting a rebound for S&P earnings in the second half which, if it turns out to be the case means the second quarter will represent trough earnings.

Third and fourth quarter earnings are forecast to grow by 0.3% and 7.3% respectively, pushing calendar 2023 into positive territory by 0.8%.

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