The Fed Is Aiming for a Soft Landing. What It Means for Earnings.

The bond market is certainly paying attention. The yield on the 10-year Treasury nudged above 4% again on Friday and climbed higher still early Monday. It’s lower than the 14-year high seen last October, but getting back up there.

There are a few explanations for this, none of them mutually exclusive. One is that traders see inflation remaining higher over the longer term. Next, they see Fed rates staying higher for longer. Third, they’re optimistic that the economy will remain resilient, which would also keep Fed rates higher than otherwise.

Shorter-term yields aren’t rising as much, since it looks like the Fed may really be close to ending its aggressive campaign of tightening. That means the recession-signaling inverted yield curve is flattening out. Both the Fed and Bank of America have changed their forecasts and no longer predict a recession.

But that doesn’t mean investors should expect too much from earnings. United Parcel Services reports Tuesday–like FedEx, they’re often seen as a bellwether of things to come. Disney and Alibaba will make headlines later in the week.

If there’s been a theme from this earnings season so far, it’s that good results haven’t necessarily led to big stock gains, and even mild disappointments have been punished. Stocks have done well with higher interest rates so far. The question is how long it lasts.

—Brian Swint

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Inflation Report for July to Hit Back-to-School Season

This week, investors await Thursday’s release of the consumer price index for July. It is expected to tick higher than June’s readings on the headline number and match June’s growth when excluding volatile energy and food prices. Already, the CPI is at its lowest level since April 2021.

• Consumers have proved surprisingly resilient for the better part of the last two years, bucking expectations that they would buckle under high inflation and rising interest rates. Part of that resilience stems from a strong labor market and wage gains.

• Consumer-product companies and retailers are gearing up for back-to-school shopping. Recent earnings reports from restaurants and consumer staple companies also suggest that Americans may finally have hit a wall with price increases.

• Prices for stationery supplies were 9.6% higher in June compared with last year, while clothing is up 3.1%. But some analysts now say savings fatigue could prompt more shoppers to splurge this year, after relentless belt-tightening last year.

• About 80% of school shoppers plan to buy at big retailers including
  Walmart,

  Costco,
  and
  Target,
  while 60% also plan to shop at online-only stores, such as
  Amazon,
  according to a Deloitte survey.

What’s Next: The University of Michigan’s consumer sentiment reading for August on Friday is expected to dip slightly from July, when inflation expectations remained well-anchored despite the sharp drop in the growth of inflation from last year.

—Liz Moyer and Sabrina Escobar

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UPS, Lilly, Disney Due to Report Earnings This Week

United Parcel Service
is among the 34 S&P 500 companies reporting their latest earnings this week. Slightly more than normal have beaten Wall Street’s estimates for earnings per share, according to FactSet. But third quarter per-share profit is expected to rise 0.2%, slower than earlier expectations.

• Walt Disney
  leads major entertainment companies reporting this week. But
  Paramount Global,
  parent of CBS, Showtime, Comedy Central and other channels, could also add detail to how studios are positioning themselves amid the continuing actors and writers strike.

• Eli Lilly
  is expected to report profit of $1.98 a share on revenue of $7.6 billion, which would be up nearly 17% from last year’s second quarter. The drug maker is expected to report gains in sales of its Type 2 diabetes, autoimmune, and breast cancer drugs.

• UPS’s unionized Teamsters workers agreed to at least endorse a tentative five-year contract with the company, but not everyone was happy. Investors are hoping for details on what it means for shipping prices.

• Wynn Resorts
  is expected to return to profitability as the summer travel season showed a surge in vacation bookings. Revenue is expected to be $1.5 billion, up 65% from last year’s second quarter on a surge from casino and hotel sales.

What’s Next: Wall Street analysts expect S&P 500 company earnings to stage a bigger rebound for the fourth quarter, according to FactSet. For 2023 overall, companies are expected to show a per-share profit gain of 0.8%.

—Liz Moyer

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Lucid Cuts Prices in Luxury EV Challenge to Tesla

Auto maker Lucid Group has lowered the prices of its Air luxury sedans, a move that could strengthen its challenge to industry leader Tesla in the high-end electric-vehicle segment.

• Lucid reduced the price of its Air Pure to $82,400 from about $87,000, and cut prices of the Touring and Grand Touring versions to $95,000 and $125,600, respectively. The Touring model previously started at about $107,000, and the Grand Touring Air sedan at about $138,000.

• The price changes follow a similar move from Tesla, which cut prices on its own most expensive models—the Model S and Model X SUV—earlier this year. The Model S luxury sedan currently starts at $88,490, according to Tesla’s website.

• Lucid deliveries in the second quarter were less than analysts had expected. The company is on track to manufacture about 8,800 units in 2023, short of its most recent guidance for about 10,000 units.

What’s Next: Lucid is still a tiny EV producer compared with Tesla. However, with the backing of Saudi Arabia’s Public Investment Fund—its majority owner—Lucid is planning to introduce more affordable vehicles and directly challenge Tesla in different parts of the market. The price cuts could give an indication of whether EV buyers are willing to switch brands. There will no doubt be more details when it posts earnings after the bell Monday.

—Adam Clark

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Musk, Zuckerberg Trade Barbs Ahead of Talked About ‘Fight’

Elon Musk said Sunday that his much-speculated-about cage fight with
Meta Platforms
CEO Mark Zuckerberg will be “live-streamed” on X, the social media platform formerly known as Twitter. Though an actual time and place for the fight hasn’t been revealed, Zuckerberg said he’s ready.

• Musk proposed in June that the two CEO billionaires should have a cage fight. Zuckerberg appeared to agree by asking where they should have it. On Sunday, the Meta Platforms CEO said he suggested Aug. 26 as a date, but Musk hasn’t confirmed.

• Tesla
  CEO Musk said any proceeds from a cage fight would go to veterans, without offering further details. He and Zuckerberg have been trading barbs on their respective social media platforms. Musk said he has been training by lifting weights throughout the day.

• Zuckerberg’s latest project, the microblogging platform Threads, gathered 100 million users in its first few days, posing a challenge to X. Although the number of daily active users declined about 70% from a July 7 peak, according to The Wall Street Journal citing research. Musk said X has lost half of its advertising revenue and hasn’t returned positive cash flow as quickly as he thought it could.

What’s Next: Musk has offered to pay legal fees for X users who find themselves treated unfairly by an employer for something they posted or liked on X. As with the cage match, Musk hasn’t shared further details about this aid. His post did say “no limit.”

—Janet H. Cho

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Barbie Becomes Second 2023 Movie to Surpass $1 Billion

Greta Gerwig’s Barbiesurpassed $1 billion in estimated worldwide box office ticket sales three weeks after its July 21 opening, ComScore reported. Barbie is the most successful film solo directed by a woman since Wonder Woman, which earned $821.8 million worldwide. Gerwig also co-wrote Barbie’s script.

• Warner Bros. Discovery’s
  Barbie, based on
  Mattel’s
  popular and most profitable doll, is the second 2023 movie to cross the $1 billion threshold, after
  Comcast
  -owned Universal Pictures’ The Super Mario Bros. Movie, which has raked in $1.35 billion worldwide, according to BoxOfficeMojo.

• Barbie has sold $459.4 million in cumulative North American box office, including an estimated $53 million this weekend, according to ComScore. It has sold more domestic tickets than Walt Disney’s Indiana Jones and the Dial of Doom, and Paramount’s Mission: Impossible—Dead Reckoning Part One, BoxOfficeMojo said.

• Warner Bros.’ Meg 2: The Trench opened in second place domestically this weekend, with $30 million in North American ticket sales; Universal Pictures’ Oppenheimer was third with $28.7 million; and Paramount Studios’ Teenage Mutant Ninja Turtles: Mutant Mayhem was fourth with $28 million, ComScore said.

• Internationally, Meg 2 was the top movie in ticket sales, Barbie was second; and Oppenheimer, about the American theoretical physicist, was third, according to ComScore.

What’s Next:
AMC Entertainment Holdings
reports second-quarter earnings on Tuesday. The largest movie theater chain saw its best week ever of admissions revenue from July 21-27, but CEO Adam Aron has said the Hollywood writers and actors strike creates uncertainty ahead.

—Janet H. Cho

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***

—Newsletter edited by Liz Moyer, Callum Keown. Rupert Steiner.