Fundamental Analysis

Equities Have a Bullish Start with Earnings in Focus

  • 78% of S&P 500 earnings have exceeded Wall Street’s expectations.
  • Analysts anticipate a 4.3% annual growth in S&P 500 earnings for the third quarter.
  • The Fed will convene for a two-day monetary policy meeting on Tuesday.

US equities surged on Monday, marking the start of a busy week with a packed schedule, including significant earnings reports, economic data, and the Federal Reserve’s two-day monetary policy meeting. All three major US stock indices recovered from the previous week’s decline.

Microsoft Corp,, and Apple Inc, leaders among interest rate-sensitive megacap stocks, were the main contributors to the upward trend.

Oliver Pursche from Wealthspire Advisors in New York described the day as an earnings rebound, attributing the market’s recent decline to overselling. He pointed out that earnings have been strong, the US economy continues to perform well, and this positive trend is expected to continue next year.

The third-quarter earnings season has reached its midpoint, with 251 S&P 500 companies reporting their results. Of those, 78% have exceeded Wall Street’s expectations, according to LSEG. Analysts anticipate a 4.3% annual growth in S&P 500 earnings for the third quarter, a significant improvement from the 1.6% year-on-year growth seen at the start of October.

Pursche noted a shift in investor sentiment, with less pessimism than in the first and second quarters. Concerns over interest rates, Fed policies, and an impending recession have lessened.

On Tuesday, the Federal Open Markets Committee (FOMC) will convene for a two-day monetary policy meeting. Markets expect the Fed to maintain the Fed funds target rate at 5.25%-5.50%. Investors will closely analyze the accompanying statement and Fed Chair Jerome Powell’s Q&A session for insights into the central bank’s future rate decisions.

In recent weeks, geopolitical tensions from the Israel-Hamas conflict and rising Treasury yields have put downward pressure on stocks. Consequently, the S&P 500 has dropped by approximately 10% from its July high. 

European equities, on the other hand, began the week positively, benefiting from a decrease in bond yields. European sovereign bond yields declined as markets have factored in the expectation of higher policy rates. 

German inflation (Source: Destatis, Eurostat)

German inflation (Source: Destatis, Eurostat)

Meanwhile, data showed that inflation in Germany’s most populous state, North Rhine-Westphalia, eased in October, while Spain’s 12-month inflation remained unchanged at 3.5% from the previous month. Furthermore, data revealed a slight contraction in the German economy during the third quarter.