Market Strategy 11/28/2022
Moving Right Along
With just a few weeks left in the year markets have favored an upward trajectory since mid-October
Key Takeaways
- With 97% of the S&P500’s companies having reported Q3 results, earnings are up 3.4% on the back of 11.5% revenue growth.
- Of the 11 sectors, three have reported double-digit earnings growth, one has reported triple-digit earnings growth, and five have reported negative earnings growth. All 11 sectors have reported positive revenue growth thus far this season.
- The week ahead will provide a stream of data that will give traders and investors a better feel for both the resilience of the economy and where its challenges lie.
- Economic data and Q3 earnings reports have enabled investor sentiment to improve toward equities allowing a broad rally across sectors, market capitalizations and styles.
As S&P 500 Q3 earnings season moves into the rearview mirror traders investors stateside returning from the long Thanksgiving weekend will be greeted by a busy calendar of key economic data culminating with the November non-farm payroll report on Friday. Throughout the week results from and commentary about Black Friday and Cyber Monday will be grabbing the attention of the denizens of the market.
Stateside and around the world monetary policy makers will be speaking at events providing opinions and insights that will likely feed into market performance over the course of the week likely adding to both upside and downside risk on a day to day basis.
In China zero-COVID lockdown policy persists on back of an increase in case numbers. Protests against said policy by workers and students in several large cities have moved investor sentiment on a day to day basis toward a risk off stance after having recently supported rallies on expectations that lockdown policies and monetary policy might be loosened further.
Last week saw stocks rally stateside in a holiday abridged week with the Dow Jones Industrial Average, the S&P 500, the S&P 400 (mid-cap), the S&P 600 (small-cap), Russell 2000 (small-cap) and the NASDAQ respectively gaining on the week: 1.78%, 1.53%, 1.95%, 1.17%, 1.05% and 0.72%. As of last Friday’s close these same indices had posted respective gains from the low of this quarter on October 12 of: 17.58%, 12.55%, 13.61%, 13.16%, 10.75% and 7.77%.
With these same indices off respectively on a year to date basis: 5.48%, 15.53%, 9.94%, 12.08%, 16.75% and 28.24%, respectively, we’d venture to say that it’s too early to bring the party hats out of the box.
While we’re not out of the woods yet, sentiment has improved helped by better than expected inflation, positive GDP as well as other economic data; a better than expected S&P 500 Q3 earnings season and a sense beginning to emanate from some corners of the market that indeed the Fed may not be hell bent on pushing the economy into a recession and may even not need to.
In our view, things just might be getting better even as plenty of uncertainty remains as an overhang that keeps market participants on their toes.
The end of a period of “free money” (caused by overstimulation in response to the pandemic by the Fed and politicians in Washington) is likely to prove a good thing as bond issuers pay something in return for the privilege of borrowing money and bond buyers get better interest rates to offset the normal risks they take related to inflation, credit and callability.
For investors in stocks and other asset classes it could result in an environment where fundamentals matter more than momentum and leverage.
Time will tell.
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