Staying Awake

Information to feed both bulls and bears was in ample supply last week, and as earnings season gained momentum, so did the major indexes. The Dow Jones, S&P 500 and NASDAQ each climbed approximately 5% and saw trading end Friday on a positive note. Fixed Income saw yields rise, as bond prices fell, and Gold ended the week up, while Oil fell.

Leading into third-quarter end, many analysts had tempered expectations for company performance due to both inflationary pressures trimming profit margins and general economic slowing. With a lowered bar, many big names have beaten expectations thus far. Continuing the trend with financials, Bank of America beat expectations, followed by names in other sectors, including Johnson and Johnson, trucking firm JB Hunt and AT&T. Netflix beat across the board, giving numbers far above projections in many areas, which caused their shares to surge.

There were a few negative occurrences on earnings, one of which was Tesla. Though they beat on earnings, revenue came in slightly below expectations and margins did not please analysts. Social media site Snapchat was also more profitable than expected but saw their stock plunge nearly 30%. Thoughts leading to the selloff centered around Internet advertising revenue, which has been a concern for many such firms. Snapchat increased users above expectations but failed to generate additional income, raising concerns about the business model in this environment and added to concern around similar companies who are yet to report, such as Google parent Alphabet and Facebook parent Meta.

Optimism on Friday came mainly from reports that some in the Federal Reserve are growing concerned about effects related to their aggressive interest rate hikes. Though no one has made statements on the record, it is the first bit of ‘dovish’ policy rumors to reach the ears of markets. Most believe the Fed will raise rates by 0.75% at their meeting in November, but after that point there is less certainty on what to expect. On October 27, the advance estimate of Q3 GDP will be released, with consensus showing Q/Q Real GDP ending up positive (est. 1.9%) versus the prior two negative prints (-0.58% and -1.63%). This could indicate a return to economic growth after adjusting for inflation.

The week had many impactful geopolitical events. In the UK, Prime Minister Liz Truss resigned 44 days into her term, after the forced resignation of her finance minister, Kwasi Kwarteng, the previous week. In Ukraine, Russia continues missile and drone attacks at key power and heating infrastructure, while Ukraine nears retaking Kherson, the first city captured by Russia in the conflict. Finally, Xi Jinping was reelected as CPC General Secretary from China’s CPC party meeting.

Seeing a green week for markets can be a morale boost during times of economic uncertainty. Pairing those gains with some positive bits of news is doubly welcome. 1 Thessalonians 5:6 states, “So then let us not sleep, as others do, but let us keep awake and be sober.” While our team hopes for another edition of the July rally we saw this summer, we’re staying alert and continue to position our portfolios for the ebbs and flows to come in both markets and news cycles.

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