The Week in Review: October 25, 2021
Groundhog Day
The movie Groundhog Day stars Bill Murray, who portrays a hapless weatherman sent to Punxsutawney, PA, to cover the annual holiday. But he unexpectedly finds that he is trapped in town, repeating the same day over and over.
How does the early 1990s film relate to this week’s topic?
As we’ve experienced in the past, investors brace for problems or uncertainty as earnings season gets underway. But as the season unfolds, profits for most companies typically exceed expectations. That’s what we are seeing today.
With 23% of S&P 500 companies having reported Q3 results, 84% have topped analyst profit expectations, according to FactSet.
On October 1, analysts had expected S&P 500 profits to rise 27.5% versus the same period one year ago. As of October 22, that forecast has been upwardly revised to nearly 33%.
Take a look at the graphic below. It’s no surprise that earnings fell during the Covid Recession. Conversely, the reopening of the economy and vigorous growth fueled a surge in profits, which peaked in Q2.
We would expect growth to moderate as comparisons versus one year ago become more difficult. Think about it—Q2 of 2021’s 96% increase contrasts against Q2 2020, when economic activity had fallen sharply amid lockdowns here and abroad.
Anything north of 20% has historically been strong. While supply chain challenges and higher costs have surfaced in various reports, upbeat numbers have helped soothe fears.
So, with an assist from still-low interest rates, which creates less competition for stocks, the Dow Jones Industrial Average and the S&P 500 Index hit a new high last week (MarketWatch).
Many companies have yet to report, and larger-than-expected problems could surface as the season progresses, but the early read is encouraging.
If you have any questions or concerns, please don’t hesitate to let me know.
Two for the Road
Gold is one of the largest financial assets in the world with an average trading volume of $183 billion. Since 2011, the S&P 500 has returned more than 16% on an annualized basis. In that same period, the 10-year Treasury has returned close to 2%; however, the price of gold has fallen slightly. —CNBC, September 24, 2021
The world now has 3,204 billionaires, the first time the number has risen above 3,000. —Business Insider, September 24, 2021
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1. The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.
2. The NASDAQ Composite is an unmanaged index of companies which cannot be invested into directly. Past performance does not guarantee future results.
3. The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.
4. The Global Dow is an unmanaged index composed of stocks of 150 top companies. It cannot be invested into directly. Past performance does not guarantee future results.
5. CME Group front-month contract; Prices can and do vary; past performance does not guarantee future results.
6. CME Group continuous contract; Prices can and do vary; past performance does not guarantee future results.