Potential Relief For Markets?
All major equity sectors were higher last week as stocks rallied on Friday.
So far, 20% of S&P 500 companies have reported earnings for Q3 and 72% have exceeded earnings estimates. That’s below the 5-year and the 10-year averages. However, even at a 1.5% earnings growth rate as of today, that’s higher than each quarter in 2019. We learned last week that Industrial Production picked up in September after struggling for the past couple of months. The struggling housing sector had some positive news as Building Permits and Existing Home Sales were better than expected.
The Fed’s Beige Book showed modest expansion as 6 districts grew, 4 districts were flat, and only 2 districts declined. Weekly Jobless Claims dipped after rising for two consecutive weeks.
Some dovish comments by Fed members last week caused terminal Fed rate expectations to drop last week. While the number of remaining hikes hasn’t changes (Nov, Dec, Feb), the market now expects only 25 basis points in December and February. We will be watching consumer spending and GDP this week to gauge the breadth of recession. Corporate buybacks have been on a blackout period that ends this week. So far, in 2022, corporates have been the largest buyers of equities. Also lending to the potential for better returns moving forward is the historical post-Mid-term Election bump. Going back to 1946, the average return after Mid-term Elections is +3 to +5%. We're not out of the woods yet, as we need to see clear evidence the U.S. Consumer is absorbing inflation well enough to keep spending.
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