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Earnings season, Amazon Prime Day – What to know in the week ahead

After more dovish communications from Federal Reserve officials sent U.S. stocks to record highs last week, second-quarter corporate earnings results will pose the next test for equity investors.

Traders this week will have plenty to sink their teeth into, between the start to second-quarter earnings season, hearings on Facebook’s controversial new cryptocurrency project and Amazon’s Prime Day extravaganza.

Earnings season kicks off

Big banks including JP Morgan Chase (JPM), Goldman Sachs (GS), Morgan Stanley (MS) and Bank of America (BAC), along with several major tech names Netflix (NFLX) and Microsoft (MSFT) deliver quarterly results this week, setting the tone for the rest of second-quarter earnings season.

Wall Street is bracing for S&P 500 companies to post the worst batch of earnings results in three years in the face of ongoing macroeconomic concerns. Consensus analysts expect an about 1% year-over-year decline in aggregate earnings per share for the second quarter, amid deteriorating economic indicators including ISM and PMIs, and higher input costs as a result of a strong labor market.

“Economic growth is the primary driver of S&P 500 sales and earnings growth,” David Kostin, Goldman Sachs chief U.S. equity strategist, wrote in a note.

However, Wall Street analysts were similarly despondent heading into first quarter earnings season – but corporations ultimately outperformed.

“Analysts had expected a 2% decline YoY in 1Q S&P 500 EPS, similar to what they are now penciling in for 2Q,” Bank of America Merrill Lynch analysts wrote in a note. “Actual 1Q EPS wrapped up with +3% YoY growth.”

For the second quarter, consensus expectations are calling for all 8 S&P 500 sectors to see positive sales growth, but margins contraction. The communication services and financials sectors are forecast to see the fastest pace of EPS growth, at 4% and 3% growth, respectively, Kostin notes.

Sales, sales, sales

Amazon (AMZN) kicks off its fourth annual blockbuster Prime Day sale midnight on Monday, promising “more than one million deals globally” for products from Alexa-enabled devices to goods from many of the company’s third-party sellers.

While Amazon has not historically broken out sales attributable directly to the extravaganza, analysts are already anticipating record-breaking results. In June, the company went on a hiring spree to keep up with the anticipated volumes.

A worker assembles a box for delivery at the Amazon fulfillment center in Baltimore, Maryland, U.S., April 30, 2019. REUTERS/Clodagh Kilcoyne

Gross merchandize volume generated during this year’s expanded 48-hour Prime Day is expected to come in between $5 to $6 billion, according to a Bank of America Merrill Lynch analysis released Friday. Based on estimates from the research firm Internet Retailer, Amazon brought in $4.2 billion during the 2018 Prime Day, $2.4 billion in 2017 and $1.5 billion in 2016.

Prime Day starts this year at midnight on July 15, and lasts two full days. Other online and brick-and-mortar retailers including Target, Walmart, eBay and Kohl’s are also rolling out sales to coincide with Amazon’s discounted prices – creating a halo effect that could boost sales across the retail sector.

Facebook heads to Capitol Hill

Facebook (FB) is set to defend its cryptocurrency ambitions to lawmakers on Tuesday and Wednesday in testimony before the Senate Banking and House Financial Services Committees.

Facebook’s “Calibra,” unveiled in June, was developed to create a highly accessible financial system for users around the world, especially those without access to traditional banks, according to the company. However, the grandiose mission has come under intense scrutiny from many U.S. policymakers.

In a letter sent to the company’s executives just two weeks after it unveiled its plans, House Financial Services Committee Chairwoman Maxine Waters called for Facebook and its partners to “immediately agree to a moratorium on any movement forward on Libra – its proposed cryptocurrency and Calibra – its proposed digital wallet.”

“Because Facebook is already in the hands of a over quarter of the world’s population, it is imperative that Facebook and its partners immediately cease implementation plans until regulators and Congress have an opportunity to examine these issues and take action,” the letter read.

Small toy figures are seen on representations of virtual currency in front of the Libra logo in this illustration picture, June 21, 2019. REUTERS/Dado Ruvic/Illustration

David Marcus, head of Facebook’s cryptocurrency project, wrote in a response that the company was “taking the time to do this right,” promising to answer lawmakers’ “important questions,” according to a report from The Hill.

Other U.S. officials have also been vocal about their trepidations over the project. Federal Reserve Chair Jerome Powell said that “Libra raises serious concerns regarding privacy, money laundering, consumer protection, financial stability,” at a congressional hearing Wednesday.

Meanwhile, President Donald Trump wrote in a Twitter post Thursday that he was “not a fan of bitcoin and other cryptocurrencies,” noting that Libra would “have little standing or dependability.”

Economic calendar

Monday: Empire State Manufacturing Survey (2.0 expected, -8.6 prior)

Tuesday: Import price index MoM, June (-0.7% expected, -0.3% prior); Retail sales advance MoM, June (0.1% expected, 0.5% prior); Industrial production MoM, June (0.1% expected, 0.4% prior); Capacity utilization MoM, June (78.1% expected, 78.1% prior); NAHB Housing Market Index, July (64 expected, 64 prior); Business inventories (0.4% expected, 0.5% prior); Net long-term TIC flows, May (0.4% expected, 0.5% prior)

Wednesday: MBA mortgage applications, week ended July 12 (-2.4% prior); Housing starts, June (1.26 million expected, 1.269 million prior); Building permits, June (1.3 million expected; 1.299 million prior); Federal Reserve releases Beige Book

Thursday: Philadelphia Fed Business Outlook, July (5.0 expected, 0.3 prior); Initial jobless claims, week ended July 13 (216,000 expected, 209,000 prior); Continuing jobless claims, week ended July 6 (1.7 million expected; 1.723 million prior); Leading index, June (0.1% expected, 0.0% prior)

Friday: University of Michigan Consumer Sentiment Index, July preliminary (98.6 expected, 98.2 prior)

Earnings calendar

Monday: Citigroup (C) before market open; Charles Schwab (SCHW) after market close

Tuesday: JPMorgan Chase & Co. (JPM) Goldman Sachs (GS), Wells Fargo (WFC), Johnson & Johnson (JNJ) before market open; United Airlines (UAL) after market close

Wednesday: Bank of America Corporation (BAC), PNC Financial Services Group (PNC) before market open; Netflix (NFLX), Crown Castle International (CCI) after market close.

Thursday: Morgan Stanley (MS), Ally Financial (ALLY) before market open; Capital One Financial Corporation (COF), SunTrust Banks (STI), Microsoft (MSFT) after market close

Friday: Cleveland-Cliffs (CLF), Synchrony Financial (SYF), American Express (AXP) before market open

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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