Stocks rallied last week on a stream of positive corporate earnings surprises. Remember, earnings, and nothing else, drive stock prices. Other metrics are mostly useful in proportion to their predictive power about future earnings.
The Dow Jones Industrial Average rose 1.08%, while the Standard & Poor’s 500 advanced 1.64%. The Nasdaq Composite index gained 1.29% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, was up 0.23%.1,2,3
My Macro Analysis
The best case scenario, and the case for optimistic investors, is that consumer spending may accelerate. Relative to before COVID (Q1 2020), the average U.S. Household is worth ~30% more. That is part of the reason not everyone is rushing to get back to work in spite of the end of the eviction moratorium and the end of extended unemployment benefits (most federal student loan payments don't resume until January.)
If you aggregate the S&P into one earnings statement, the index peaked at $165/share for the trailing 12-months before the pandemic, then retreated 15%, and now stands at an estimated $200/share for the full year 2021. Given the health of the consumer and the hope that supply chain issues have peaked (moving the ports of LA to 24/7 operation was big) I think the final number for 2021 is likely to be higher.
Possible issues that could disrupt the good times include a misstep by the Fed leading to an inverted yield curve, tax increases to pay for the Biden agenda phased in too quickly, and persistent inflation. I will be keeping a close eye on these factors as always.
Earnings Ignite Rally
Fears over inflation, supply shortages, and slowing economic growth in China were pushed aside last week as investors reacted to a daily succession of positive corporate earnings surprises. After the Dow Industrials reached an all-time high intraday on Wednesday, fresh earnings reports, an increase in existing home sales, and a new pandemic low in initial jobless claims–and continuing claims–propelled the S&P 500 index to a new record high the following session.4,5
Disappointing earnings before the market opened on Friday hurt a few social media stocks, resulting in a choppy trading session and a selloff in the Nasdaq to close out the week.
Solid Start To Season
Investors came into the earnings season anxious about whether businesses could extend the earnings growth momentum of recent quarters amid an increase in Delta infections, inflation, labor shortages, and supply-chain bottlenecks. The early results were encouraging. Of the 23% of companies comprising the S&P 500 index that have reported, 84% beat Wall Street consensus earnings estimates by an average of more than 13%.6
The earnings season may get more uneven in coming weeks since many of the companies potentially affected by labor shortages and inflation have yet to report. Nevertheless, these better-than-expected earnings buoyed investor spirits and allowed stocks to build on their October gains.
This Week: Key Economic Data
Tuesday: New Home Sales. Consumer Confidence.
Wednesday: Durable Goods Orders.
Thursday: Gross Domestic Product (GDP). Jobless Claims.
Friday: Consumer Sentiment.
Source: Econoday, October 22, 2021
This Week: Companies Reporting Earnings
Monday: Facebook (FB), KimberlyClark Corporation (KMB).
Tuesday: Microsoft Corporation (MSFT), General Electric Company (GE), Advanced Micro Devices, Inc. (AMD), Twitter, Inc. (TWTR), Visa, Inc. (V), Alphabet, Inc. (GOOGL), Lockheed Martin Corporation (LMT), Eli Lilly and Company (LLY), Texas Instruments (TXN), United Parcel Service (UPS), Capital One Financial Corporation (COF).
Wednesday: The Boeing Company (BA), Ford Motor Company (F), Bristol Myers Squibb Company (BMY), General Motors (GM), Twilio, Inc. (TWLO), CocaCola Company (KO), McDonald’s Corporation (MCD), GlaxoSmithKline (GSK), ServiceNow, Inc. (NOW), Spotify Technology (SPOT), General Dynamics Corporation (GD).
Thursday: Apple, Inc. (AAPL), Mastercard (MA), Caterpillar, Inc. (CAT), Starbucks Corporation (SBUX), Merck & Company, Inc. (MRK), Shopify, Inc. (SHOP), Northrop Grumman Corporation (NOC), Comcast Corporation (CMCSA), Illinois Tool Works, Inc. (ITW).
Friday: AbbVie, Inc. (ABBV), Exxon Mobil Corporation (XOM), Chevron Corporation (CVX), LyondellBasell Industries N.V. (LYB).
Source: Zacks, October 22, 2021
“Give what you have to somebody; it may be better than you think.”
– Henry Wadsworth Longfellow
Tax Tips on Identity Theft
Here are a few things to know when attempting to protect yourself against identity thieves:
* This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.
Tip adapted from IRS.gov7
The Health Benefits of a Meat-Free Day
There’s no denying the overwhelming health benefits of a plant-based diet. You still can enjoy such a diet’s many health benefits by going “meat free” for just one day a week. Here are some of the main benefits:
Tip adapted from Hello Magazine8
If you add 1.5 to this number, you will get the same result as you would if you multiplied it by 1.5. What number is it? (Hints: It is a whole number, it is not zero, and it is between 1 and 10.)
Last week’s riddle: What nine-letter word begins and ends with the letter “S” and has only one vowel? Answer: Strengths.
Surveyor near Seljalandsfoss waterfall, Iceland.
Footnotes and Sources
2. The Wall Street Journal, October 22, 2021
3. The Wall Street Journal, October 22, 2021
4. CNBC, October 20, 2021
5. The Wall Street Journal, October 21, 2021
6. FactSet, October 22, 2021
7. IRS.gov, June 8, 2021
8. hellomagazine.com, June 24, 2021
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Weekly Market Insights: Strong Week on Wall Street
October 26, 2021