Alphabet and Microsoft report earnings today after the close. Meta’s results are due tomorrow and Amazon’s on Thursday.
The good news is that the earnings recession is about end and the profit outlook brightens from here according to Bloomberg. However, a lot of this outlook hinges upon the results of the four companies listed above.
Bloomberg reports profits in the S & P 500 are forecasted to decline 2.1% in 3Q growth year over year. However, excluding the five members with the heaviest market capitalization, four of which are mentioned above, the index is projected to post a 5.2% drop in earnings.
An argument can be made that if any of these five companies disappoint, the odds that the S & P 500 may violate the pivotal 200 day moving average of 4235 rises significantly. It has been bouncing along this level for several days.
Bloomberg writes companies that miss earnings get punished by the greatest amount since 2019’s second quarter, the inception of this data point. TSLA’s 17% two-day decline is perhaps evidence of this environment.
The volatility in the Treasury market is intense. Yesterday, the 10-year Treasury climbed over 5%, a 16 year high. As little as 6 months ago, few would have predicted this pivotal benchmark to trade to such levels. The yield quickly retreated as perhaps some “closed out” short positions.
However, can it be suggested a troubling reality: a new era appears to be dawning in the Treasury market and it is shredding confidence in any predictions of where yields may peak?
Yes the Federal Reserve may be near the end of the most aggressive tightening in history but longer debt is still “very expensive” relative to current inflation levels, levels that are considered lofty. Are the markets beginning to accept a new reality where the inflationary speed limit may be increased to 3% from 2%?
Some influential fixed income luminaries believe a “mid six handle” for the 10-year Treasury is indeed plausible for a myriad of reasons including stubborn inflation and the unsatiable need of funds by the federal government.
What will happen today? Equites were bifurcated yesterday as the NASDAQ rallied about 0.3% while the Dow fell by a similar amount. Treasury yields ended lower on the day after spiking to a 16 year high.
Last night the foreign markets were mixed. London was down 0.03%, Paris up 0.64% and Frankfurt up 0.23%. China was up 0.78%, Japan up 0.20% and Hang Seng down 1.05%.
Dow and NASDAQ futures are up 0.25% and 0.40%, respectively, ahead of pivotal earnings reports. The 10-year is off 3/32 to yield 4.88%.
