Corporate earnings have largely beat Wall Street's expectations this season.
Angela Weiss/AFP/Getty ImagesThe S&P 500 and Nasdaq Composite closed at record highs Thursday, pushed by investors anxious about the economy. They bought the relative safety of tech stocks.
The S&P 500 gained 1% to finish at 4,596.42 and the tech-heavy Nasdaq advanced 1.4% to close at 15,448.12. The Dow Jones Industrial Average rose 239 points, or 0.7%, after the index fell 266 points Wednesday.
Technology stocks are perceived to be able to grow even when economic growth is uncertain. And right now, economic growth is uncertain. Third-quarter GDP rose 2%, missing estimates of 3.5%—the worst performance since the June 2020 quarter. The GDP data showed inflation is eating into economic growth, wrote Peter Boockvar, chief investment officer of Bleakley Advisory Group.
“That’s one of the things that has helped big cap tech, that maybe things [economically] are slowing a bit,” said Rhys Williams, chief investment officer at Spouting Rock Asset Management.
Initial jobless claims, however, were better than expected: 281,000 vs. the 289,000 forecast.
That economic uncertainty is seen in the bond market, too. The 10-year Treasury yield has sunk to 1.57% from 1.7% a week ago, reflecting lowered expectations for inflation and economic demand for the long term after the Federal Reserve signaled it may begin hiking interest rates in 2022. That’s also evident in the two-year Treasury yield, which rose to 0.5% from 0.46% a week ago.
The “flattening” of the yield curve has been “primarily driven by Fed rate hike expectations that have skyrocketed in the past few weeks,” said Tony Bedikian, head of global markets at Citizens Bank. “Inflation has lasted much longer than the Fed had anticipated and the markets are taking the cue.”
Strong earnings reports were providing a boost for the stock market. The aggregate S&P 500 earnings per-share result has beaten analyst estimates by about 12%, according to Credit Suisse. Companies beating expectations are seeing their stocks outperform the S&P 500 by 0.8 of a percentage point, but those missing are underperforming by 3.7 percentage points.
“Partially, earnings are driving some of the movement [in stocks] upward,” Bedikian said.
Earnings stay in the spotlight, with Big Tech heavyweights Apple (ticker: AAPL) and Amazon (AMZN) reporting results. Those stocks rose 2.5% and 1.6%, respectively, ahead of earnings.
Corporate and economic fundamentals aside, money has been ready to flow into stocks, boosting the market of late. The S&P 500 is up more than 6% from its Oct. 4 bottom after a pullback, with retail investors—those who trade stocks on popular platforms such as Robinhood—have bought the dip.
“It’s still a liquidity story that’s still being played out in the equity markets,” Bedikian said.
Overseas, Hong Kong’s Hang Seng Index was 0.4% lower, as the woes of the heavily indebted Chinese property sector remained at the fore. Embattled developer China Evergrande (3333.H.K.) faces the hard deadline for an offshore bond payment Friday. The pan-European Stoxx 600 was 0.2% higher after the European Central Bank kept policy unchanged, but indicated that it would “moderately” slow the pace of its asset-buying program.
Here are five stocks on the move:
Ford (F) shot up 9% after the auto maker’s earnings, late Wednesday, saw profit beat expectations. Ford also lifted its full-year profit guidance and restarted its quarterly dividend. The company lifted its operating profit estimate by about 16% to $11 billion at the midpoint of its guidance range. Goldman Sachs analysts said pricing should be strong going forward. The analysts raised their price target to $18 a share from $17.
Altria Group (MO) stock dropped 6% after the company reported a profit of $1.22 a share, missing estimates of $1.26 a share, on sales of $6.8 billion, above expectations for $5.7 billion.
Mastercard (MA) stock initially gained, then dropped 0.7% after the company reported a profit of $2.37 a share, beating estimates of $2.19 a share, on sales of $4.99 billion, above expectations for $4.9 billion.
Stanley Black & Decker (SWK) stock slipped 0.6% after the company reported a profit of $2.77 a share, beating estimates of $2.47 a share, on sales of $4.3 billion, in line with expectations.
BJ’s Wholesale Club Holdings (BJ) stock fell 2.1% after getting downgraded to Neutral from Buy at Bank of America.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com
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October 29, 2021 at 03:27AM
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S&P 500, Nasdaq Hit Record Highs. Growth Worries Boosted Tech Stocks. - Barron's
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