This week approximately 20% of the S & P 500 post profits. Earnings are expected to beat dumbed down expectations. As written last week, third quarter profit forecasts have been reduced by over 50% since July to a growth rate of about 3% according to Bloomberg.
Projected third quarter economic growth however has been increased to around 3.4% according to the Atlanta Fed’s GDPNow model. In July the economy was projected to grow at less than half of this rate.
Writing it differently, the forecasts have been set up for success even though many stock prices have been priced to perfection.
Commenting on yesterday’s markets, both oil and gold rallied on Middle East tensions and concerns over the surging deficit. As opined the other day, will the deficit become a major driving narrative on November 6? As inferred, both Treasuries and equities sold off.
Goldman Sachs stated yesterday the S & P 500 is expected to post an annualized nominal total return of just 3% over the next ten years. The S & P 500 is currently yielding a paltry 1.27%, thus suggesting the benchmark average will only rise around 1.7%.
A reason for this forecast is the burgeoning and unsustainable deficit. Many believe it is an issue that must be dealt with before a crisis occurs. Unfortunately, many also believe it will take a crisis before any action is taken.
What will happen today?
Last night the foreign markets were down. London was down 0.73%, Paris down 0.72% and Frankfurt down 0.32%. China was up 0.54%, Japan down 1.39% and Hang Seng up 0.10%.
Futures are off about 0.5% as questions surrounding the pace of rate cuts are rising. Oil is up about 1.5% and gold is approaching a record high. The 10-year is of 1/32 to yield 4.20%.
