The Week On Wall Street
Amid a busy week of corporate earnings reports, stocks slumped on cautious earnings guidance, fears of higher interest rates, and growing anxiety over the increasing amount of Treasury bonds and notes coming to market. The Dow Jones Industrial Average dropped 1.88%, while the Standard & Poor’s 500 declined 3.29%. But the Nasdaq Composite index gave up 4.48% for the five trading days. The MSCI EAFE index, which tracks developed overseas stock markets, retreated 1.82%.
October Slide Continues
Stocks continued their slide last week despite mostly better-than-expected earnings results. While earnings surprises were generally positive, investors were troubled by declines in year-over-year net profit margins and tepid earnings guidance. Particularly hard hit were technology companies, following mixed earnings results.
Economic data released on Thursday showed remarkable economic strength, with above-consensus forecast growth in third-quarter Gross Domestic Product (GDP) and September’s durable goods orders, with only a minor uptick in initial jobless claims. The results fanned worries that the Fed might need to hike rates further or, at least, maintain high rates for longer.
Strong Economic Data
The first read of third-quarter economic growth was a blowout, with GDP increasing at an annualized rate of 4.9%. This pace was well ahead of the prior quarter’s 2.1% expansion and above consensus forecasts. Powering the third quarter’s economic performance was strong consumer spending and inventory build-up. Durable goods orders jumped 4.7% in September, confirming the nation’s continued good economic health, easily outpacing the 0.1% rise in August and economists’ forecast of two percent. Meanwhile, initial jobless claims slightly increased, suggesting that the labor market remains healthy.
This Week: Key Economic Data
Wednesday: FOMC Announcement. Automated Data Processing (ADP) Employment Report. Institute for Supply Managers’ (ISM) Manufacturing Index. Job Openings and Turnover Survey (JOLTS).
Thursday: Factory Orders. Jobless Claims.
Friday: Employment Situation. Institute for Supply Managers’ (ISM) Services Index.
This Week: Notable Companies Reporting Earnings
The markets have been caught in a “doom loop” where all news, good or bad, is seen as negative. A friend and colleague of mine reached out the other day to get my thoughts on the current market conditions. After some discussion he replied, “I’m sitting still.” Meaning, he’s staying the course. Wise move.
As you can see from above there are a lot of earnings and news events this week. The Fed will also speak on interest rates and is not expected to move them. As far as earnings go 162 companies are reporting this week. Of the 246 companies that have reported so far (49% of the S&P 500): Overall, 79% are beating estimates, and those that “beat” are beating by a median of 6%. Of the 21% missing, those are missing by a median of -4%. On the top line, overall results are beating estimates by a median of 2% and missing by a median of -2%, and 61% of those reporting are beating estimates. So, overall earnings have been coming in good. We’ll learn more this week. From a sentiment standpoint the market is almost at an extreme bearish point. Usually, this is rarely sustainable, and we often see a change in direction when this happens. Of course, as a wise man once said, this indicator is 100% accurate about 80% of the time. This too, shall pass.