U.S. companies continued announcing second quarter earnings this week. With 15% of S&P 500 companies reporting, earnings and sales are better than expected. Earnings growth is 14.8% higher than estimated. This positive surprise has been led by Energy and Materials sectors. Sales growth was 3.2% better than expected, led by Materials and Health Care sectors. The figure below shows how sector results are coming in relative to expectations. Current analyst estimates have earnings for the quarter declining by 41.2% and a decline in sales of 10.7%. The second quarter is expected to be the quarter worst hit by COVID-19 lockdowns. This expectation may change as more states record increasing numbers.

We saw indications of consumer strength in June. Retail sales for the month were up 7.5%. The month-over-month growth was led by growth in sales for electronic and appliance stores, furniture and home furnishing stores and clothing stores. Year-over-year (YOY), sales grew by 1.1%. The YOY growth has been led by significant increases in online sales. Growth in nonstore retailers over the period was 23.5%.

Housing was a mixed bag this week. Housing starts were better than anticipated at 1.186 million versus 1.163 million. On the other hand, the sale of existing homes was lower than expected. Sales numbers were at 4.72 million which compares unfavorably with the expected 4.9 million. The number of building permits issued was also lower than expected at 1.241 million versus 1.28 million. Despite some housing numbers being weaker than expected, we are seeing a strengthening housing market as indicated by earnings results coming in from home builders. The reopening of local economies and low mortgage rates are leading to increases in home purchases.

Unemployment insurance claims continue to be elevated. The July 11 reading of 1.3 million indicates the recovery may not be as quick as some have thought.

Source: BTC Capital Management, Bloomberg LP, Ibbotson Associates, FactSet.
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