The US stock markets gained fractionally last week (ending Oct 16) as the Dow (+0.1%), NASDAQ (+0.8%), and S&P 500 (+0.2%) each extended their winning streak to three weeks. Taxable and muni bonds were up about 0.1% - 0.2%. Given the opportunity for headline swings, it was a pretty mild week. After all, the elections are in three weeks, COVID cases are on the rise again in the US and Europe, and there is speculation swirling about another economic stimulus package. Plus, we have entered third quarter earnings season. Thus, given all three of these headline grabbers and earnings reports, we can expect continued volatility over the next few weeks. I do have two interesting charts to share today – one on earnings and one on the market’s recovery, so here we go.
Earnings – After about 10% of the S&P 500 quarterly earnings reports, data has shown that corporate earnings are down 20% from Q3 last year, but have surpassed earnings estimates by 23%, with 86% of companies beating their projections. The chart below reflects quarterly earnings reports compared to estimates over the last four years. Of course, let’s put this into perspective. It’s much easier to exceed expectations when you lower the bar, which is common among corporate CEOs (particularly during the COVID uncertainty). When companies miss their earnings expectations, their stock prices often get punished, and CEOs don’t like that. Regardless, I would say that it is very encouraging to see corporate earnings exceeding expectations like they have in Q2 and so far in Q3.
Market Recovery – The next chart (provided by Datatrek) shows an extraordinarily similar pattern of market growth since the COVID bottom when compared to the beginning of the recovery from the global financial crisis back in 2009. While past history is no guarantee of future results, the similarity is stunning, and one could conclude that the recovery still has some legs left. Of course, in 2009, it was the beginning of a new presidential term, and not the months leading up to an election.
Have a great day!
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