Finimize - ✨ Earnings' big dipper

What’s going on here?

Data out on Wednesday showed that China’s rapid recovery has been usurped by a sedate slow-poke.

What does this mean?

Another month, another truckload of data showing that China’s economy isn’t going in the right direction. Just look at the country’s service sector, where growth slowed to its weakest pace since January last month. And that’s far from the only fly in the ointment: manufacturing activity, for one, has now been shrinking for three straight months. That comes as weaker consumer spending, a shaky housing market, and high youth unemployment are all threatening the economy, showing that China’s not exactly on the firmest foundations right now. And that means all eyes are on the government’s next move – especially with the all-important Communist Party meeting coming up later this month.

Why should I care?

The bigger picture: Small fry feel the burn.

The People’s Bank of China already cut interest rates for the first time in nearly a year in June. But there’s an issue: it seems that’s mostly been benefiting state-owned enterprises and bigger firms, leaving the smaller, private firms struggling to access funds. And while that’s a problem the People’s Bank of China is trying to fix, it’s not clear if any juicier, more aggressive measures will actually be brought in. After all, even with this data, the government’s not under any great pressure to act: economists are still predicting 5.5% economic growth this year, comfortably above the government’s 5% target.

For markets: Two-part wish list.

Chinese stocks kicked off the year with a bang – but those former high-flyers have since tumbled over 20% from their January peaks. The culprits: a sluggish economic rebound and rising tensions with Uncle Sam. That means hopes for a second-half comeback hinge on two key things: a thaw in US-China relations, with a much-touted meeting taking place this week, and some potential new stimulus measures to boot.

What’s going on here?

The stage is set for US companies to roll out their second-quarter earnings updates – and it could be a minor burnout.

What does this mean?

Earnings season is just around the corner, with the big US banks set to kick things off in earnest next week. But analysts are already playing the guessing game. Data from FactSet suggests they’re bracing for a bit of a drop: they reckon S&P 500 firms might see an overall 6.5% earnings dip compared to last year – the biggest slump since mid-2020. But it’s not a total sob story. While dropping commodity prices and a shaky economy have got the energy and materials sectors bracing for a serious fall, seven out of the eleven sectors are still predicted to climb, with consumer discretionary and communication industries tipped to lead the pack.

Why should I care?

For markets: Eye on the prize.

Earnings season can make or break the stock market’s mood. But it’s not just the actual figures that matter: it’s about meeting or beating expectations, which are already priced into stocks. Plus, it’s companies’ outlooks that could be the real headliners here – remember, investors are more interested in the future than the past. And despite whispers of an earnings dip, analysts are still feeling bullish: the percentage of buy ratings among the S&P 500 companies is above the five-year average right now.

The bigger picture: Peaking market or piquing interest.

The tech sector grabs headlines because it’s a big player, accounting for about a quarter of the S&P 500. But it’s been getting even more attention lately thanks to the AI buzz, which helped tech kick off the year on a high note. And sure, not everyone’s buying into the hype, but some analysts think this is just the warm-up act: they’re predicting that an AI-driven tech bull market is now ready to take center stage.