There's a New Hot Topic on Earnings Calls This Quarter

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OVERNIGHT DEVELOPMENTS

Global stocks held steady Monday as investors shrugged off the weekend’s events in Turkey, signaling the country’s failed coup attempt wouldn’t have a wider impact on financial markets.

Futures markets pointed to a small opening gain for the Dow Jones Industrial Average, which climbed to a record close Friday amid upbeat U.S. economic data.

The Stoxx Europe 600 was up 0.1% recently, with falls in commodity-related stocks offsetting a sharp rise in technology shares.

Turkey’s main BIST-100 index was down around 5% Monday, but the Turkish lira showed signs of stabilizing after registering its sharpest one-day decline since October 2008 on Friday after news of the attempted coup.

Asian markets mostly inched higher, with the exception of the Shanghai Composite Index, which fell 0.4% as investors weighed China’s latest growth data released Friday against a slowdown in house price rises.

BREAKFAST BRIEFING

Second-quarter earnings season gets going in earnest this week, and the next two weeks are the heaviest in terms of the sheer number of reports coming in. Bank of America Corp., International Business Machines Corp., Netflix Inc., Goldman Sachs Group Inc., Johnson & Johnson, Microsoft Corp., and Intel Corp. highlight this week’s parade.

So far, earnings season is going about as expected. With about 7% of S&P 500 companies reporting through Friday, second-quarter profits are on pace to contract by 5.5%, according to FactSet; headed into the season, the projection was a 5.5% drop. (The FactSet figures replace estimates with actual earnings figures as results come in, while using consensus estimates for those yet to report.)

If the pace holds up, it will mark the fifth consecutive quarter of declining profits. Meanwhile, sales are down 0.6%.

What exactly is driving that drop? FactSet Research sifted through the conference-call transcripts of the companies that have reported so far, and came up with a list of the most-cited terms and phrases. Granted, it’s a small sample, only about 30 transcripts, but it shows a pretty typical batch of concerns.

Currency exchange leads the way, with 21 companies mentioning it (no surprise, given some of them were banks). Interest rates came next (12), then oil (12), Brazil (11), China (11), Brexit and the U.K. referendum (10), wages (9), weather (6), and the election (3). Zika and terrorism did not come up at all.

Brexit, of course, was the new kid on the block. All the others had made last year’s conference calls as well. Just because they’re mentioning it, though, doesn’t necessarily mean they are overly concerned about it. “In the short term, certainly, it has very little, if any, impact on us, at least from the U.K. perspective,” Paychex said on its June 30 conference call.

“For us, change is normal and sign of life. We work with and manage it every day,” Walgreens Boots Alliance said on July 6.

That seems to be the market’s conclusion as well, given the sharp rebound in the equity market since the post-vote selloff.

DAILY FACTOID

On this day in 1969, a car driven by Sen. Ted Kennedy plunged off a bridge on Chappaquiddick Island near Martha's Vineyard. His passenger, 28-year-old Mary Jo Kopechne, died.

KEY EVENTS

10:00 a.m.: Housing Market Index for July [Prior: 60; Consensus: 61]

Investors will watch the National Association of Home Builders’s market sentiment index for signs of a strengthening expansion in construction. After four-straight months at 58, the index rose two points in June and is expected to build on that gain in July.

STOCKS TO WATCH

U.S.-listed shares of U.K. chip designer ARM Holdings PLC surged 43% in pre-market trading after news that Japan’s SoftBank Group Corp. is buying the Apple Inc. supplier for £24.3 billion ($32 billion).

Bank of America Corp. was down 0.2% after saying quarterly profit fell. The bank was hurt by the continued drag of low interest rates, though the bank’s results beat expectations.

Hasbro Inc. is up 0.2% before the bell after reporting better-than-expected revenue and profit, as offerings such as Star Wars and Frozen brand toys continued to drive growth at the toy maker.

Charles Schwab Corp.’s shares are up 3.6%. It's quarterly report is also due before the market open.

And after the market closes, the first earnings reports will come from the big names in technology. International Business Machines Corp., Yahoo! Inc., Netflix Inc. and VMware Inc. are all slated to release results after hours

MUST READS

A Warning Sign for Emerging Markets: The failed coup in Turkey highlights the pitfalls facing global investors fleeing low returns in the West for hard-to-assess, idiosyncratic risks in emerging markets.

Turkey Coup -- A Test of Emerging Faith: Turkey’s attempted coup will put the spotlight on the country’s long-running financial vulnerabilities.

Strength of Nikkei Resurgence Will Depend on Japan Stimulus Plans: Markets expect a doubling down on “Abenomics,” a program brought in by Prime Minister Shinzo Abe that has aimed to stoke Japan’s economy through fiscal and monetary stimulus.

Japan and Helicopter Money -- Fan Blades Aren’t Turning Just Yet: Bank of Japan chief Haruhiko Kuroda isn’t shy of getting creative. It’s just hard to tell when those creative juices are ready to flow.

Next Test for U.S. Stocks: Will Consumers Step Up? With U.S. stocks at new highs, led by safety plays such as utilities, investors are looking toward the so-called consumer-discretionary companies like retail stores and auto makers to see if the rally will last.

As Rates Sink, Housing Bubbles Rise: Low interest rates around the world are fueling a familiar threat of housing bubbles, and central bankers in a number of key economies feel powerless to stop them.

World’s Newest Banking Crisis Centers on World’s Oldest Bank: A conflict brewing between Italy and the EU over bank-bailout rules, and centering on Banca Monte dei Paschi, could come to a head when the results of European stress tests are released this month.

Now Isn’t the Time to Binge on Netflix: Netflix’s stock price has stagnated as subscriber growth has slowed.