Halloween: Zombie Apocalypse Averted?

Ghostly Rally:

Markets rallied again late last week with the S&P500 rallying 4.0% to cut its YTD losses to -18.7% amid a mixed set of earnings results.

Industrials, consumer staples, and financials led the week, while telecom (heavily weighted to META) was the lone negative group. Treasury yields tanked 21 bps last week.

We’re in the heart of earnings now. There were some dogs last week (Amazon had disappointing Q4 guidance and Meta sunk into a metaverse illusion), but investors responded positively to Apple and Intel results. With almost of the S&P 500 now reporting, 71% have topped earnings estimates (Bloomberg data) and 56% have beaten on sales.

• These are both in-line with longer-run data. Bottoms-up estimates compiled by Refinitiv, consensus S&P 500 earnings growth for 2022 Q3 has been clipped to 3% y/y from 11.1% y/y in July (and that’s despite a strong upgrade in the energy sector). Excluding energy, earnings growth is now tracking at -3.5% y/y. The strong dollar is hurting multinational earnings.

Wheat futures prices are up more than 5% after Russia said it would suspend participation in the Ukraine grain deal, threatening to reverse the recent decline in global food costs.

On Wednesday, the FOMC is expected to raise its policy target rate by 75 bps for a fourth straight meeting to a range of 3.75%-to-4.0%, and to signal the need for further rate hikes due to high inflation and a tight labor market. Investors will be eying the press statement and Powell’s press conference for hints of a shift toward smaller rate increases at future meetings.

Historically, positive seasonality begins shortly with about half of companies having now exited their repurchase blackout windows however the pace of buyback executions has slowed considerably.

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