The S & P 500 is broaching the pivotal 200 day moving average. Oil prices are at the highest levels in over a year. The VIX or the fear index is at levels last experienced in March. Long dated Treasuries are hovering around yields last experienced 16 years ago. Diplomats are scrambling to contain the Hamas conflict.
And the averages only show nominal declines. Wow! Against the above backdrop, one would expect equities to be around bear market territory.
What will occur this week? Earnings season accelerates. Bloomberg writes of the 86 S & P 500 companies that have posted results, 74% have exceeded expectations. Last year’s third quarter, 78% of S & P 500 companies exceeded forecasts.
This week tech heavy weights AMZN, META, MSFT and GOOG post results. Bloomberg writes the seven largest companies [four of which are listed above] are expected to increase quarterly profits by an average of 39%. Wow! This is a very high bar, and the valuations of these companies are extremely stretched.
As widely discussed, seven companies [four of which and listed above plus NVDA, AAPL and TSLA] are trading at 45x earnings versus 29x at the start of the year. The S & P 500 is trading at a more reasonable 19x profits. These seven companies have also attributed to almost all the 2023 gains in the markets resulting in the most imbalanced market in history.
Perhaps the only certainty to write, if any above the companies miss results, volatility may increase. Take for example, last week TSLA disappointed sending share lower by 17% in two days.
Also released this week is initial estimates of third quarter GDP. According to a Bloomberg survey, the economy is expected to grow by 4.5% for the period. This is a sharp increase from the 2.1% pace of the second quarter.
As discussed many time, most—including the Federal Reserve—had thought the economy would be near or in a recession at this time given the most aggressive monetary policy in history.
If the economy expands at this rate, it would be around the top five quarters of growth of the millennium ex COVID distortions.
All will scrutinize the quality of the growth and the inflationary indicators embedded within the data.
The economic calendar is comprised of several manufacturing indices, inventory statistics, durable goods orders, housing data, and initial estimates of third quarter GDP.
Last night the foreign markets were down. London was down 0.65%, Paris down 0.22% and Frankfurt down 0.75%. China was down 1.47%, Japan down 0.83% and Hang Seng down 0.72%.
Futures are down about 0.50% as long dated yields continue to rise. The 10-year is off 17/32 to yield 4.99%.
