The comeback trail stock market should be another stellar earnings season

Date:

On October 6, 2021, a professional trader is working in a booth on the floor of the New York Stock Exchange (NYSE) in New York City.

Brendan MacDermid | Reuters

Stocks have turned out to be difficult to hold down this week, and the start of next week’s earnings season could further strengthen the comeback if profits roll as expected or better.

The main average is heading for the week of victory after overcoming the debt cap blunder in Washington. Legislators have passed a short-term contract to extend the debt cap until December, kicking off future market overhangs.

Overcame this week’s price behavior Soaring crude oil prices When Disappointing work report, Investors are buying banks and energy stocks.

Ryan Detrick, chief market strategist at LPL Financial, said, “I’m impressed with the recovery in stock prices this week in the face of Washington drama, Delta concerns, years of high oil prices and much weaker employment than expected. I need to receive it. ” Said.

The market recession that began in September caused the S & P 500 to fall by more than 5% from its record at some point on Monday before the stock rebound. In a week, the S & P 500 rose about 1%, just 3% off record.

Goldman Sachs stuck to the bullish year-end forecast earlier this week and predicted that stock prices would begin to climb the wall of concern. And they did.

David Costin, Goldman’s Chief US Equity Strategist Said in a memo For clients, his year-end S & P 500 price target for 2021 is still 4,700, almost 7% above current levels.

The company said profit growth, rather than valuation expansion, was the main driver of the S & P 500’s year-to-date 17% return, adding that it should still be the case.

Earnings season begins

Next week, the third-quarter earnings season, which begins with the earnings of major banks, is expected to be another powerful series of reports, despite concerns about supply chain issues and rising costs. According to FactSet, third-quarter revenue is expected to increase by 27.6% year-on-year. This is the third highest growth rate since 2010.

“We’ve seen record earnings seasons in the last few quarters, so we’ll be looking at whether earnings can help justify stock prices near record highs,” Detrick said. “We’re looking forward to another strong earnings season, but we’ve already seen some attention-grabbing warnings, so the US company could have fairly high standards to clear this quarter. There is sex.

Bank earnings will be the main focus next week, with reports from JP Morgan Chase, Bank of America, Morgan Stanley, Citigroup and Goldman Sachs.

After a few months of rangebound bank stocks, analysts are looking forward to catalysts that may accelerate the next phase of recovery. Wall Street is expecting Loan growth, interest rates and reserve releases to reflect in major bank reports.

“Third-quarter earnings should be strong again, almost above expectations,” said Jim Paulsen, chief investment strategist at Loithold Group. “Third-quarter working hours increased by about 5%, suggesting that quarterly real GDP could be close to 7%, as most companies report strong pricing power. Strong growth in real GDP should bring a surprisingly strong corporate earnings season. “

Paulsen believes that the earnings season rewards cyclical things like banks and small caps rather than tech stocks.

“I think the stock market is already showing signs of a leadership shift from slow-growing areas such as growth, technology and defense to economically sensitive areas of the small caps and circular sectors,” he said. Added.

Supply chain, high cost warning?

The earnings season should be good, but there could be some warning signs about inflation and supply constraints that could scare the market about the year-end setting.

“There are still risks that could lead to rising inflation, the Fed’s tapering, and a season of volatile earnings,” said Peter Bookbar, chief investment officer of the Brigley Advisory Group. Stated.

There were some signs last week when Bed Bath and Beyond’s stake created a 25% crater after the company. He said traffic had dropped sharply in August. Bed Bath & Beyond suffered a loss of profits during the summer, especially towards the end of the second quarter of August, when inflation costs rose.

What investors know about entering the third quarter is that, from company guidance, it may or may not be in this earnings season.

FactSet data shows that 47 S & P 500 companies released negative revenue guidance in the third quarter and 56 companies announced positive outlooks.

Do you want to send the headwind first?

The number of jobs headlined on Friday was a big disappointment as the economy added just 194,000 jobs in September. This is well below Dow Jones’ estimate of 500,000. On the positive side, the unemployment rate has fallen to a point far below economists’ expectations. At 4.8%, it is the same level as seen in late 2016.

It’s unclear if that number will change the calculus as to when and how fast the Federal Reserve will delay its $ 120 billion monthly bond purchase program.

“In our view, these numbers are sufficient and the debt cap may be cut off,” said Christopher Harvey, senior equity analyst at Wells Fargo Securities. It is likely to solidify as a “go time”. “

“We anticipate a volatile backlash in the stock market and a two- to four-week tech bounce, but the Fed will probably slow down the bounce next month,” he said. Added.

Calendar one week ahead

Monday

(Bond market closed)

Tuesday

6am NFIB Small Business Index

10am JOLTS Jobs

Revenue: Fastenal

Wednesday

8:30 am CPI

2:00 pm FOMC Minutes

Revenue: JPMorgan Chase, BlackRock

Thursday

8:30 am PPI

8:30 am every week Unemployed billing

Revenue: Bank of America, Morgan Stanley, Citigroup, Walgreens Boots Alliance, Wells Fargo, Domino’s Pizza, US Bancorp, UnitedHealth

Friday

8:30 retail sale

10am University of Michigan Consumer Emotions

Revenue: Goldman Sachs, JB Hunt, PNC Financial

— With a report from Michael Bloom on CNBC.

The comeback trail stock market should be another stellar earnings season

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