Macro drivers are limited today, with the focus on tomorrow’s September US CPI inflation report. However, Q3 earnings season gets underway before then.
Earnings Doing the Heavy Lifting
Major US equity benchmarks remain circling all-time highs, with the S&P 500 up 14% and the Nasdaq 100 up 21% YTD. This is despite elevated oil prices, persistent inflationary concerns, and multi-decade highs in global bond yields; therefore, earnings are doing most of the heavy lifting.
According to FactSet, the YY earnings growth rate for the S&P 500 is anticipated to reach 29.6%, marking the third consecutive YY quarter with annual growth north of 25% for the index. What is interesting, though, is that the S&P 500 has become ‘mathematically cheaper’ because corporate profits are growing faster than the index’s share prices.
The current forward 12-month P/E is 19, meaning investors are paying US$19 for every US$1 of forecast corporate profit over the next year. The 5-year average is 19.8. So, historically, over the past five years, investors have been willing to pay a higher premium for that same US$1 of future profit.
Another point I want to highlight is the market’s narrow breadth. We have only around 34% (48%) of S&P 500 constituents trading above their 50-day (200-day) MAs. However, just because a few tech giants are carrying the market does not mean the stock market is about to crash, despite some claims. Instead, while some stocks have lagged behind the big tech companies, they still have plenty of room to grow if they report better-than-expected earnings.
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See all Brent Oil forecastsEarnings to Watch Today
Today’s key earnings releases include major banking giants Citi, Goldman Sachs (with a whopping 10.3% weighting in the Dow), JPMorgan (nearly 4% in the Dow), and Wells Fargo. Additional prints to watch today are Johnson & Johnson and UnitedHealth, which together account for about a 7% weighting in the Dow.
Another strong quarter could reinforce the bull narrative into year-end, while a disappointment could catalyse a broader pullback. The risk is that expectations are high after a strong Q2, so even solid results or cautious guidance could disappoint and perhaps weigh on the key stock indexes.
Market Snapshot This Morning
Asia-Pac shares traded red overnight, weighed by losses in chipmakers. South Korea’s KOSPI is currently down 5% and finding acceptance below its 200-day SMA around 6,385.
US bond markets were closed for Columbus Day on Monday, but Treasuries have since caught a bid on safe-haven demand and sent 10s below 5.2%.
In FX, the USD index refreshed multi-month peaks on oil-driven inflationary pressures and ongoing Middle East escalation. USD/JPY tried to gain a foothold above its 50-day SMA at ¥158.55, inching closer to the widely watched ¥160 threshold. The euro also clocked a fresh YTD trough against the buck, tunnelling through US$1.12 and eyeing key monthly support around US$1.1112 amid rising oil prices and lingering French fiscal pressures.
In commodities, oil benchmarks have pulled back modestly in Asian trade, with Brent down about 1.5% near US$105/barrel and WTI around US$92, as the market weighs a temporary easing of US restrictions on Russian diesel supply against ongoing Saudi-Houthi tensions.
Written by FP Markets Chief Market Analyst, Aaron Hill
