Overview: Global stocks were mixed last week, as U.S. stocks rose to new highs, while international stocks lagged. In the U.S., the S&P 500 index was up 1.4% as corporate earnings continued strong and optimism increased around the resolution of fiscal legislation on infrastructure and social spending bills. Markets now look for direction this week from the Federal Reserve meeting Tuesday and Wednesday, where the Fed is expected to announce the timing for tapering in their asset purchases, as well as provide views on inflation. Last week’s U.S. September personal income and outlays data showed core inflation, as measured through the PCE price index, up 0.2% for the month, and 3.6% year-over-year. The report reflected price increases in both goods and services, as longer-term inflation continues to be a concern for investors. The 10-year Treasury finished the week at 1.56%, up 3 basis points on the week. In other economic data, GDP growth slowed to 2.0% in the third quarter from 6.7% in the previous quarter, reflecting supply constraints and the effects of the COVID-19 Delta variant on economic activity. In addition to the Fed meeting, focus this week will be on factory orders and durable goods data mid-week, as the key jobs report on Friday, where consensus expectations are for 400,000 new jobs (up from 194,000 last month). The unemployment rate is expected to continue to fall to 4.7%, from a reading of 4.8% in the previous month.
Update on Earnings: (from JP Morgan) With 73.9% of market cap reporting, we are currently tracking 3Q21 operating earnings per share (EPS) of $51.61. If realized, this would represent a growth of 36.2% y/y and a slight contraction of 0.8% q/q; however, this quarterly decline looks far smaller than it did at the start of earnings season when it stood at -7.4%. Positive earnings surprises (+11.2%) have been key in improving the quarterly figure, particularly in the consumer discretionary sector. In fact, the sector is currently tracking y/y earnings growth of 1.2%, which is remarkable given the supply bottlenecks, higher labor costs and slowdown in 3Q21 consumer spending. According to economic data released last Friday, real consumer spending increased only 0.3% and 0.6% m/m in September and August, respectively, after declining 0.3% m/m in July. Looking at autos specifically, earnings have beaten estimates as limited inventory boosted vehicle prices. Additionally, management teams were upbeat about the semiconductor shortage and believe things will normalize by the second half of next year. Turning to the apparel industry we see a similar trend, where earnings beats were driven by price increases that more than offset higher wages and commodity costs. However, on the supply chain front the commentary was less optimistic, as many of the industry’s factories in Vietnam still remain closed or are only partially open. Lastly, results at hotels & restaurants were a bit mixed, with restaurants leveraging price increases to outperform estimates while hotels continue to suffer amid renewed global travel restrictions. Looking ahead, the discretionary sector will remain in focus, particularly given the still-unresolved supply chain issues.
Weekly Returns and Data
Sources: JP Morgan Asset Management, Goldman Sachs Asset Management, Barron’s
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