Fears were renewed last week that interest rates would stay higher for longer and equities took the hit.
With nearly all companies having reported 2nd quarter earnings results, we can now turn our attention to 3rd quarter results. According to FactSet, for the first tine sine September, 2021, analysts have increased expectations for Q3 earnings by 0.4%. Typically, earnings expectations for the coming quarter are reduced. That has been the case of the past 5 years, with an average reduction of 3.0%. In addition, the number of references to “recession” on 2nd quarter earnings calls dropped for the 4th consecutive quarter and is below the 5-year average. This provides a positive backdrop for a strong finish to the end of the year.
It is a near certainty that the Fed will keep interest rates steady at next week’s meeting.
However, the odds for another rate hike in November inched higher and that sent equities lower last week. The effect was compounded by a report that China was looking to ban iPhones from governmental use and several Chinese state agencies seemed to follow suit. This pushed Apple and tech-related shares lower last week. The job market remains solid with Initial Jobless Claims hitting a 6-month low. Consumer Credit, released late Friday, showed consumers are not loading up on revolving credit. The Fed goes into blackout mode, so inflation will be the primary driver this week.
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