Broker Check


| October 31, 2022

A "Spook-tacular" Week

Stocks overcame poor earnings results from some of America’s largest companies to

post gains last week as investors cheered positive earnings surprises, easing inflation

and a rebound in economic growth. The Dow Jones Industrial Average rose 5.72%,

while the Standard & Poor’s 500 advanced 3.95%. The Nasdaq Composite index added

2.24% for the week. The MSCI EAFE index, which tracks developed overseas stock

markets, gained 4.89%.

Some mega-cap technology companies were under pressure last week on weak earnings

and tepid fourth-quarter guidance. They reported multiple headwinds, including declining

advertising revenues, loose expense control, and a slowdown in cloud growth.  Meanwhile,

positive earnings surprises from “old economy” companies powered markets higher. This

market bifurcation was evident in the divergence in the performance of the Dow Industrials

and the Nasdaq. The S&P 500 posted a substantial gain despite its disproportionate

weighting of mega-cap stocks, which helped illustrate the power of the rally.  Momentum

accelerated into Friday, aided by an easing in inflation and a solid third-quarter Gross

Domestic Product (GDP) report.

Economic Growth Exceeds Expectations

After two straight quarters of negative economic growth, the initial estimate of the third

quarter’s GDP came in at a solid 2.6%, exceeding economists’ 2.3% estimate. The

surprising economic performance was largely attributable to an increase in exports,

which narrowed the trade deficit, a development that may not repeat going forward. 

Particularly encouraging was the personal consumption expenditure price index, a report

used by the Fed to track inflation. It increased 4.2%, well below the 7.3% jump from a

quarter ago.5

This Week: Key Economic Data

Tuesday: Institute for Supply Management (ISM) Manufacturing Index. Job Openings

and Labor Turnover Survey (JOLTS).

Wednesday: Federal Open Market Committee (FOMC) Announcement. Automated Data

Processing (ADP) Employment Report. 

Thursday: Jobless Claims. Factory Orders. Institute for Supply Management (ISM)

Services Index.

Friday: Employment Situation.

This Week: Notable Companies Reporting Earnings

Tuesday: Pfizer, Inc. (PFE), Eli Lilly & Company (LLY), Marathon Petroleum

Corporation (MPC). 

Wednesday: CVS Health Corporation (CVS), Qualcomm, Inc. (QCOM), Fortinet, Inc.

(FTNT), Humana, Inc. (HUM), Cigna Corporation (CI), Booking Holdings, Inc. (BKNG),

Prudential Financial, Inc. (PRU).

Thursday: Block, Inc. (SQ), PayPal Holdings, Inc. (PYPL), Amgen, Inc. (AMGN),

ConocoPhillips (COP), Regeneron Pharmaceuticals, Inc. (REGN).

Friday: Dominion Energy, Inc. (D), EOG Resources, Inc. (EOG).

Final Thoughts

There are 169 of S&P500 companies are reporting earnings this week.  Those mentioned

above are just some of the more well known companies. Of the 259 companies that have

reported so far (52% of the S&P 500), overall earnings results are beating estimates by a

median of 5% and 72% of those reporting are beating estimates. On the top line, overall

results are beating estimates by a median of 3% and 67% of those reporting are beating

estimates.  So, while there have been a few high profile misses on earnings, the lion’s

share are beating estimates.

The Fed will move markets this week as their comments on inflation and the expected

future path of rate hikes will be highly monitored and highly scrutinized.  Most expect a

75 basis point increase in rates this Wednesday.  From there, the market is looking for the

pace of future hikes to slow as it expects inflation to continue to contract.  Many analysts

believe economic conditions will continue to deteriorate which would warrant less interest

rate hikes, not more.  So, we may get into, and probably already are, in an environment

where bad news is good news for stocks; meaning a slowing economy means a higher

probability of a pause in rate hikes and maybe even a cut down the road.  Remember the

stock market is forward looking and would prefer interest rates lower.

Stocks are up a lot in the past few weeks and will most likely take a little breather before

staging their next move.  Of course, we have midterm elections next week as well.  As I

mentioned last week, data is coming from a firehose the next few weeks and will likely be

a catalyst for the market’s direction the remainder of the year.  

If you’d like a little encouragement, take a look at the chart from Ned Davis Research below.  

It illustrates how when we’ve had large up moves in successive days (like last week) where

the market stood over different periods of time going forward. Note, the rally we had earlier

in the year didn’t meet these specifications. The current results are pretty encouraging. 

 Stay tuned and make it a great week.  Happy Halloween!