Hope you are all doing well. The major U.S. stock indexes started the week and ended it with sizable daily rallies, rebounding from the previous week’s mostly negative results. The S&P 500, the NASDAQ, and the Dow all finished with weekly gains of around 5%. Taylor Swift’s highly anticipated new album was released this week, I have broken down this week’s update using some of her more popular songs.
Shake It Off
The labor market continues to never miss a beat. Despite concerns about rising interest rates and recessionary trends, the jobs report continues week in and week out to show strength. The government reported that American workers submitted 214,000 initial claims for unemployment benefits during the latest weekly period. That figure is down from 226,000 the week before and very close to the historically low level that they’ve averaged year to date.
Clearly for Prime Minister Liz Truss the high was (not) worth the pain. Truss stepped down from her post after 45 days on the job. The financial market turmoil that followed the release of her tax-cut plan triggered political fallout for the United Kingdom’s leader. Before resigning on Thursday, Truss abandoned her proposals for large tax cuts paired with spending increases.
…Ready For It?
Let games begin, earnings season is now in full swing. About 20% of the S&P 500 companies have reported third-quarter results, and about 73% have exceeded earnings forecasts, above the average of 70%. Perhaps a common theme in earnings season is that U.S. consumers remain resilient. Despite the looming economic headwinds that we have been hearing about for the last 9 months corporate earnings are still growing. We heard from the big banks like J.P. Morgan, Bank of America and Goldman Sachs. They all pointed to strong consumer spending and low delinquency rates. It’s not just banks that are benefitting from a strong consumer Netflix, United Airlines, and Procter & Gamble, all beat earnings and all commented on the resilience of household demand. The subdued expectations analysts had at the start of earnings season are starting to improve. After this week’s batch of quarterly results came in. Third-quarter net income is now expected to rise 1.5% compared with the same period a year earlier, based on S&P 500 companies that have already reported combined with projections for those still scheduled to report. That’s up from last week, when analysts had forecast growth of 1.3%.
It is very important to remember the stock market is a leading indicator and that rate hikes take time to impact economic results. Economic results and corporate profits will likely get worse in the coming months. That doesn’t mean the stock market will continue to go down because the market has been pricing in a recession. The market could already be rebounding and heading higher even as economic numbers as earnings reports get worse.
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