Stock bulls are hoping a better-than-expected start to earnings season will continue to shift some of the focus away from inflation and the Federal Reserve. Bulls believe Q3 results that have mostly topped analyst estimates are an encouraging sign that companies and consumers alike are holding up well under the current inflationary headwinds.
Bulls are also pointing to executive comments on earnings calls that are painting a rosier picture of the economy than financial headlines may indicate. Bank of America yesterday was the latest big bank to say they see no immediate signs that US consumers are under significant financial stress. BofA noted that even its less affluent customers had savings rates still five times higher than pre-pandemic levels while loan delinquencies are at their second-lowest level of all time.
To be clear, many bank executives are still predicting the economy will slip into recession by next year but have also said strong consumer and business balance sheets should help limit any damage.
There seem to be few on Wall Street that believe the US can escape inflation without at least a moderate downturn. The big worry is that recession sets in and inflation still remains high into 2023 in spite of the Fed’s tightening program. Many inflation hawks argue that interest rates have to move above the rate of inflation in order to cool things off, which would mean a Fed fund’s rate of near 9% at current levels.
Investors will start to glean insights into a wider mix of businesses this week with nearly every sector represented. Some are worried that disappointing results from Netflix today could cast another dark cloud over the tech sector. Investors are expecting the streaming giant to add 1 million new subscribers after reporting two consecutive quarters of declining users.
Data to watch
Albertsons, Hasbro, Interactive Brokers, JB Hunt, Johnson & Johnson, Lockheed Martin, and United Airlines also report today.
The only US data today is the NAHB Housing Market Index. It’s worth noting that China has “indefinitely” delayed the release of key economic data, including GDP, retail sales, property sales, and home prices that had previously been scheduled for release today and tomorrow. China also delayed trade data last week without any explanation. The delays come as China is in the middle of its twice-a-decade Communist Party Congress where President Xi Jinping is expected to be given a historic third term in office. There is a lot of speculation about the data delay, including a technical glitch, worse-than-expected data, or even that Chinese leaders want to keep the focus on the party’s key messages during the Congress. Chinese leaders have maintained an official GDP target for this year of around 5.5%, though growth during the first half was less than half that. From my perspective, bears could backpedal the next couple of weeks as there are very few macro economic headlines in the mix.
Most of the nearby talk could circulate around slightly better-than-expected US corporate earnings, more talk and chatter of some type of Treasury bond buyback program, talk of a cap being placed on EU natural gas prices, China releasing more optimistic headlines following this week’s Congressional conference, the UK taking a more dovish approach, and the US dollar perhaps weakening a bit.
Q3 Results Bring Hope to Wall Street
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