4.10pm: US markets enjoy another buoyant day
US markets reported a second day of strong gains on Tuesday boosted by solid results from Goldman Sachs and Lockheed Martin, amongst others, reducing concerns that the quarter three earnings season would be disappointing.
By the close the Dow Jones Industrial Average was 338 points higher, or 1.12%, at 30,524, the S&P 500 was up 42 points, or 1.14% at 3,720 and the Nasdaq Composite advanced 97 points, or 0.9%, to 10,772.
Goldman Sachs Group Inc gained 2.33% after reporting a smaller-than-expected drop in quarterly profit as a boost in net interest income cushioned the blow from a slowdown in investment banking.
Lckheed Martin fared even better, soaring 8.47% after the weapons maker posted stronger-than-expected quarterly revenue and maintained its 2022 revenue view.
“3Q and 4Q earnings should confirm fundamentals remain anchored in resilient labor market and Covid reopening.”
“Equity valuation will likely remain tied to global central bank rhetoric and rates, which is turning incrementally less negative.”
“As such, we see equities primed for upside into year-end on resilient 2H22 earnings, low equity positioning, very negative sentiment and given more reasonable valuation,” Dubravko Lakos-Bujas, JPMorgan’s head of global macro research, said in a note to clients.
12.05pm: US markets continue upbeat tone
US indices remained green at midday, as investors focus on earnings results, with Goldman Sacks rounding out the major banks.
At midday, the S&P 500 was up by 0.6% at 3,701, while the Nasdaq Composite was up by 0.5% at 10,732 and the Dow Jones rose by 0.7% to 30,383 points.
Joshua Mahony, senior market analyst at online trading platform IG, said Goldman Sachs closes out a period where US banks have highlighted ongoing economic risks despite improved margins.
“Goldman Sachs revealed better-than-expected earnings for the third quarter, with a 11% rise in trading revenues helping to lift the bottom line after a disappointing quarter for their investment banking arm. Soon both will be one entity, with the bank restructuring in a bid to simplify the business and step away from their retail banking offering,” Mahony wrote in a report.
Goldman Sachs’ third quarter revenue came in at US$11.98 billion, over the analysts’ expectations of $11.41 billion, or US$8.25 a share, topping analysts' expectations of $7.69. At midday, its shares were up 2.5%, trading at US$314.
More than 35 big cap companies have reported earnings this week, and almost 70% have beat earnings estimates, according to Refinitiv.
“This represents the final major US bank to report, with investors continuing to watch for a collapse in activity on Main Street as the cost of living crisis develops. While we are yet to see a major dent in consumer activity, the outlook remains unclear as higher rates bring both improved margins and lower demand,” Mahony wrote.
The major movers at midday saw cruise lines Carnival, Norwegian, and Royal Caribbean floating higher by 9.3%, 6.5% and 5.4% respectively. Lockheed Martin rose by 6.7%, followed by Target, up by 5%, and Pinduoduo was up by 5.6%.
On the downside, Moderna slid by 4%, and Hasbro fell 3.1% on a 3Q earnings miss amid high inflation and as higher prices for its toys meant consumers were passing on purchases.
9.35am: Recession fears forgotten as earnings steal the show
US stocks have extended their gains from yesterday ahead of a big week of corporate earnings.
Just after the market opened, the Dow Jones Industrial Average had added 607 points or 2% at 30,793 points, the S&P 500 was up 83 points or 2.3% at 3,761 points, and the Nasdaq Composite had gained 267 points or 2.5% at 10,947 points.
Forex.com market analyst Fiona Cincotta said today’s rise added to yesterday’s strong rally as upbeat earnings distracted investors from inflation, recession, and hawkish Fed fears.
“Those same recession fears had meant that the bar was low heading into earnings, raising the likelihood of beating estimates,” she said.
She noted, even though stocks were rising as earnings provided a welcome distraction, this move higher was still a bear market rally rather than anything more meaningful.
“Cheap valuations and positive results have seen investors jump back into the market,” Cincotta said. “However, with inflation, hawkish central banks, and recession fears still providing headwinds to the market, there are questions about how high this rally can go.”
6.30am: Will the buoyant mood last?
US stocks are expected to open higher again, extending the gains seen on Monday as the corporate earnings season continues to unfold.
Bank of America’s strong results, released on Monday, helped shore up share prices and some of that feel-good sentiment is expected to spill over into Tuesday’s trading. That said, much of the prevailing concerns about rising interest rates and elevated inflation remain intact and market activity is expected to stay volatile.
Futures for the Dow Jones Industrial Average were up 1.0% in pre-market trading, while those for the S&P 500 were 1.2% higher, and contracts for the Nasdaq-100 added 1.5%.
James Hughes chief market analyst at scopemarkets.com, noted that there is a slew of corporate earnings for markets to contend with today, among them Goldman Sachs, Lockheed Martin and Johnson & Johnson all before the bell.
But, he said: “It’s numbers from Netflix after the close that may be under the greatest scrutiny. A sharp decline in subscribers will underline how the current inflationary climate is weighing on consumers, potentially heaping further pressure on the Fed."
The Federal Reserve has hiked interest rates by 75 basis points three times this year. Investors expect another such hike at the Fed’s next meeting at the start of November as rate-setters attempt to cool persistently high inflation.
Data out last week showed that US CPI inflation remains at levels around 40-year highs while core inflation, which strips out more volatile elements, picked up. The data is expected to keep the pressure on US rate-setters to continue hiking interest rates even if that means that economic activity may falter.
On the data front on Tuesday, the focus will be on industrial and manufacturing production numbers due out at 9.15am ET.
“US equities got the week off to a somewhat raucous start, despite those concerns that the Fed may go for another big rate hike before the year end and with scant regard for the deteriorating conditions businesses are squaring up to,” said Hughes.
“That was highlighted with yesterday’s shortfall in the Empire State Manufacturing Index, so expect. At some point, the confident air from the Fed or equity markets will run out,” he added.
Contact the author at jon.hopkins@proactiveinvestors.com