Market/Earnings Update – Monday Morning Market Memo – October 25, 2021

Market/Earnings Update – Monday Morning Market Memo – October 25, 2021

Good morning,

The three major stock market indices all finished higher last week.  The Dow Jones Industrial Average gained 1.1% to a new record high close of 35,677 – the NASDAQ composite added 1.3% to 15,090 – while the Standard & Poor’s 500 Index increased 1.6% to 4,545.

The primary factor behind the gains and positive momentum was optimism surrounding third-quarter earnings, which overcame worries about inflation and what could be interpreted as some hawkish (less accommodating monetary policy) comments out of the Federal Reserve.

Looking at data from FactSet: For the third-quarter of 2021, with 23% of S&P 500 companies reporting actual results, 84% have reported a positive EPS (Earnings Per Share) surprise (which is above the 5-year average of 76%), and 75% have reported a positive revenue surprise (which is above the 5-year average of 67%).

The overall strength of earnings reports helped investors overlook negative factors including inflation, a tight labor market, likely Federal Reserve tightening and supply chain problems in the economy.  Also adding to positive sentiment last week was an upside surprise on initial jobless claims.  The U.S. Department of Labor reported initial claims fell to (a new pandemic low) of 290,000 – better than the 300,000 number which was expected by the market.

Reviewing some of the individual earnings highlights from last week: American Express gained over 5% after posting better-than-expected numbers on both the top and bottom lines; Netflix traded choppily after beating on earnings, but shares then moved up and ended the week near a new all-time high; even though it posted a nice earnings beat, Intel tumbled over 10% after revenues missed expectations and the company announced a large capital expenditure plan.

The week ahead is packed with earnings.  Companies reporting this week include FacebookAlphabetAmazon.comApple, and Microsoft.  Away from mega cap technology, we’ll get reports from CaterpillarCoca-ColaBoeing and McDonald’s.  Get ready for peak earnings season!

All the best – Southport Station Financial Management, LLC