US, European stocks rise despite looming risks
The potential for significant deregulation and tax cuts has excited many investors, leading US stocks to “climb the wall of worry” despite immigration and tariff risks.
As of Oct. 11, 30 companies in the S&P 500 Index reported third-quarter earnings, showing some positive trends in the making.
Company comments indicate that the US economy appears to be in good shape, powered by higher income consumers and strong corporate balance sheets.
There are significant differences in the expectations for specific sectors, so we’ll be watching closely to see how the earnings trends evolve.
Earnings season has just begun, with 6% of the companies in the S&P 500 Index having reported earnings so far. S&P 500 earnings growth for the third quarter is currently expected to be 4.1%. However, there are significant differences between sectors — technology earnings growth expectations are 14.9%, while earnings growth for the materials and energy sectors are forecast to be negative.1 In addition to the financial data being reported, the transcripts from earnings calls are giving us some interesting insights into the economy as corporate executives share their observations and outlooks.
It’s important to note that most S&P 500 companies have beaten expectations in previous quarters. In fact, the actual earnings growth rate for the index has exceeded the estimated earnings growth rate in 37 of the last 40 quarters.1 FactSet Research anticipates this will happen again this quarter, and that earnings growth will likely end up being around 7% year-over-year after actual earnings are reported for all index companies, well above the current estimate of 4.1%.1 This should be supportive of stocks.
Of course, I’m also interested in earnings season for what it can tell me about the strength of the economy (or lack thereof), risks to the economy, different sectors in the economy, different consumer segments, as well as the outlook for the near term. I went through the earnings call transcripts of a number of companies — both in the S&P 500 and outside it — that reported earnings last week. Here are some learnings from those calls:
All in all, these initial earnings calls have offered some confirmation of the resilience we’ve been seeing in recent US economic data – and a reminder of some of the risks.
In other news, I’ve been talking about the great potential impact of the stimulus package Chinese policymakers announced several weeks ago. At a press conference over the weekend, we got more details from the Chinese Ministry of Finance about their plans to use the Ministry’s balance sheet to support longer-term growth. While the specific amount of the new stimulus package wasn’t provided, the plan calls for an increase in government debt to help local governments’ balance sheets, re-capitalize state-owned banks, support the property market, and deliver financial support to groups of people in need. This is a comprehensive plan, and our initial take is that it’s likely to benefit the economy and markets in the medium and longer term with the intention of making positive structural changes.
This week will bring more earnings reports and some key data including US retail sales and US industrial production – which mean more insight into the strength of the US economy. In addition, we’ll get reports on Canada and UK inflation as well as eurozone economic sentiment among other data releases.
As I read the earnings call transcripts, I will be focused on any guidance around job cuts. As I mentioned above, it seems the strength of the US consumer going forward will be dictated by the strength of the labor market. Despite some recent positive economic data, I am ever more vigilant in looking for cracks in the US economy, the epicenter of which would likely be a weakening in the labor market. With initial US jobless claims spiking last week to the highest level in more than a year, I will be looking for any signs of weakening in the labor market – since it arguably holds the key to the health of the US consumer, which in turn holds the key to the health of the US economy
With contributions from David Chao
Date |
Report |
What it tells us |
---|---|---|
Oct. 14 |
China New Loans |
Measures the change in the total value of outstanding bank loans issued to consumers and businesses. |
Oct. 15 |
Japan Industrial Production |
Indicates the economic health of the industrial sector. |
|
France Consumer Price Index |
Tracks the path of inflation. |
|
Eurozone Industrial Production |
Indicates the economic health of the industrial sector. |
|
ZEW Eurozone Economic Sentiment |
Measures economic sentiment in the eurozone for the next six months
|
|
Canada Consumer Price Index |
Tracks the path of inflation. |
|
Korea Unemployment Rate |
Indicates the health of the job market. |
Oct. 16 |
UK Consumer Price Index |
Tracks the path of inflation. |
|
UK Producer Price Index |
Measures the change in prices paid to producers of goods and services |
|
UK House Price Index |
Indicates the health of the housing market. |
|
Canada Housing Starts |
Indicates the health of the housing market. |
|
Australia Unemployment Rate |
Indicates the health of the job market. |
Oct. 17 |
Eurozone Consumer Price Index |
Tracks the path of inflation. |
|
European Central Bank Monetary Policy Decision |
Reveals the latest decision on the path of interest rates. |
|
US Retail Sales |
Indicates the health of the retail sector. |
|
US Industrial Production
|
Indicates the economic health of the industrial sector. |
|
NAHB US Housing Market Index
|
Indicates the health of the housing market. |
|
Japan Consumer Price Index
|
Tracks the path of inflation. |
|
China Fixed Asset Investment
|
Tracks total spending on non-rural capital investments such as factories, roads, power grids, and property. |
|
China Gross Domestic Product
|
Measures a region’s economic activity |
|
China Industrial Production
|
Indicates the economic health of the industrial sector. |
|
China Retail Sales
|
Indicates the health of the retail sector. |
|
China Unemployment Rate
|
Indicates the health of the job market. |
Oct. 18 |
UK Retail Sales |
Indicates the health of the retail sector. |
|
US Building Permits
|
Provides insights into the future activity in the construction industry. |
|
US Housing Starts
|
Indicates the health of the housing market. |
The potential for significant deregulation and tax cuts has excited many investors, leading US stocks to “climb the wall of worry” despite immigration and tariff risks.
We expect significant monetary policy easing to push global growth higher in 2025, fostering an attractive environment for risk assets as central banks achieve a “soft landing.”
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1 Source: FactSet Earnings Insight, Oct. 11, 2024
2 Source: JP Morgan Chase earnings call, Oct. 11, 2024
3 Source: Wells Fargo earnings call, Oct. 11, 2024
4 Source: Tilray Brands earnings call, Oct. 10, 2024, and MTY Food Group earnings call, Oct. 11, 2024
5 Source: Conagra brands earnings call, Oct. 2, 2024, and Domino’s earnings call, Oct. 10, 2024
6 Source: Delta earnings call, Oct. 10, 2024
7 Source: Wells Fargo earnings call, Oct. 11, 2024
8 Source: Wells Fargo earnings call, Oct. 11, 2024
9 Source: Constellation Brands earnings call, Oct. 3, 2024
10 Source: Wells Fargo earnings call, Oct. 11, 2024
11 Source: Delta earnings call, Oct. 10, 2024
12 Source: Fastenal earnings call, Oct. 11, 2024
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The opinions referenced above are those of the author as of 14 October 2024.
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Businesses in the energy sector may be adversely affected by foreign, federal, or state regulations governing energy production, distribution, and sale as well as supply-and-demand for energy resources. Short-term volatility in energy prices may cause share price fluctuations.
The profitability of businesses in the financial services sector depends on the availability and cost of money and may fluctuate significantly in response to changes in government regulation, interest rates and general economic conditions. These businesses often operate with substantial financial leverage.
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