Stock Market Rides Roller Coaster into Earnings Season – Monday Morning Market Memo – October 17, 2022

Stock Market Rides Roller Coaster into Earnings Season – Monday Morning Market Memo – October 17, 2022

The major stock market averages closed notably lower on Friday, with the Dow Jones Industrial Average down over 400 points and the NASDAQ Composite down more than 3%, capping off an exceptionally volatile week of trading.  Thursday’s activity stood out the most, with the Dow closing over 800 points higher, after being down more than 500 points earlier in the day, following the most recent inflation data which came in hotter-than-expected.  For the week as a whole – the Dow rose 1.2 percent – the Standard & Poor’s 500 Index fell 1.6 percent (its fourth negative week in five) – and the NASDAQ Composite shed 3.1%.

While the stock market is inherently volatile, factors behind the recent outsized volatility include high inflation readings, Federal Reserve interest rate hikes, the war in Ukraine, lockdowns in China, and worries about global growth/recessions.  The next question facing investors is how corporate profits are going to look, as we enter another earnings season, which kicked off last week with several big banks reporting results.  JPMorgan ChaseCitigroup, and Wells Fargo shares all moved higher after beats on either earnings and/or revenues.

Earnings will be in focus during the week ahead as companies including Bank of America, Goldman SachsVerizonProcter & GambleAT&TJohnson & JohnsonIBMTeslaAmerican Express, and Netflix are scheduled to report results.  This quarter’s earnings season will be even more widely followed than usual, as continuing Fed rate hikes to fight inflation run the risk of pushing the economy into a recession (or deeper recession), which would of course lower the overall outlook for corporate profits.

Looking at current expectations for earnings season in total: According to FactSet, for the third-quarter of 2022, the blended earnings growth rate for the S&P 500 is 1.6%, if 1.6% is the actual growth rate for the quarter, it will mark the lowest earnings growth rate reported by the index since Q3 2020 (-5.7%).  More important than actual results, will be forward guidance and management discussion about their outlook for the future.  With so many macro factors in play right now, and so much uncertainty, we expect the outsized volatility to continue – as it’s just the “nature of the market” right now.

As always, don’t hesitate to reach out to us with any questions or if you would like to set up a meeting.

All the best – Southport Station Financial Management, LLC