24.10.2022 Will G3 Earnings Help Stock Bulls?

Investors are braced for another volatile week amid a packed calendar of critical earnings and economic data, followed next week by the Fed FOMC meeting.

Q3 earnings 

Earnings for Q3 so far have been better than many on Wall Street might have anticipated. Bears are quick to point out that only about 7% of S&P 500 companies have reported and that the earnings “beats” delivered so far are against expectations that are considerably lower than where they started.

Bears also note that most of Q3 earnings growth is expected to come from the Energy sector with earnings growth pegged at nearly +120%. Excluding the Energy sector, Q3 earnings for the S&P 500 index are expected to be down -5.7% from last year with 7 of the 11 S&P 500 sectors expected to show negative year-over-year earnings growth.

Oil giants Exxon and Chevron both report on Friday.

At the other end of the spectrum is the Technology sector where earnings are expected to be down more than -14% in Q3 2022 and down more than -9% in Q4.

The world’s largest tech firms all report results this week with Alphabet and Microsoft announcing on Tuesday, Meta on Wednesday, and Apple and Amazon on Thursday.

Year-to-date, Alphabet’s stock is down over -25%, Microsoft is down nearly -30%, Meta is down almost -40%, Apple is down almost -19%, and Amazon is down over -30%.

Analysts seem to think advertising dependent businesses are going to take the biggest hits while cloud computing is expected to witness ongoing growth, though at a slower pace.

Investors will also be keen to hear how US government crackdowns on China might impact various tech companies. The earnings highlights today will be Discover Financial Services and HSBC.

Data to watch

Turning to economic data, this week’s main attraction is PCE Prices on Friday with Wall Street expecting both headline and “core” inflation to move higher.

Investors today will be digesting preliminary reads on IHS Markit’s Manufacturing and Services PMIs. Recession fears have been fanned in recent months by declining manufacturing activity with the index falling from around 58 in February to just over 50 in September.

A PMI reading below 50 indicates contraction, a level the index hasn’t breached since May of 2020 during the height of pandemic lockdowns.

Wall Street will also be closely watching central bank decisions this week which could provide a preview of what to expect from the US Federal Reserve in the months ahead.

Bank of Canada announces updated monetary policy on Wednesday, followed by the European Central Bank (ECB) on Thursday, and Bank of Japan on Friday. In particular, if Bank of Canada and/or the ECB deliver smaller rate hikes or signal a more “dovish” stance, Wall Street will start to expect a similar pivot by the US Federal Reserve.

The Fed’s policy meeting is next week, November 1-2.

The trade has the odds at about 95% that the Fed raises by another +75 basis-points. The bigger debate right now is the December 14th FOMC meeting and if the Fed goes another +75 basis-points or are they going to start dialing it back to perhaps +50 basis points.

Bulls believe any sign of the Fed dialing it back might signal the bottom and one step closer to the Fed easing further in the weeks and months ahead.

Don’t forget, we are now entering the blackout period for Fed members speaking, so they won’t be able to talk down the market and or spread hawkish rhetoric.

Also keep in mind, lots of big names report earnings this week.

If they can surprise with better-than-expected and profit margins not getting too beaten up the recent bear market rally could continue.

Tomorrow’s big names include Google, Microsoft, Chipotle, General Electric, General Motors, Coca-Cola, UPS, Raytheon, Halliburton and Biogen to name a few. Wednesday will include names like Facebook, Ford, and Boeing.

Thursday we have Apple, Amazon, Caterpillar, Intel and Mastercard. Friday is all about oil and energy with big names like Chevron and Exxon Mobil reporting.

Thoughts on Possible Upcoming Rail Strike – We continue to hear talk of a possible railroad strike come in mid to late-November. From what the Wall Street Journal recently reported, “Six of the 12 railroad unions that represent 115,000 workers nationwide have approved their tentative agreements with the railroads so far, but all of them have to ratify their contracts to avoid a strike. And after the midterm elections, unions may be more willing to strike and the current administration in Washington may be more willing to let it play out since they are strong supporters of unions.” Lots of moving parts and lots to think about.

Will G3 Earnings Help Stock Bulls?

Wishing you a great week!