Weekly Stock Market Report: Earnings to the Rescue


Key Market Trends

Tip: This is a good guide to the direction of major markets in the short term (1-2 weeks). This is not a buy/sell signal, but merely a way to see the current trend. This cheat sheet will help you understand the market’s short-term trend. I began making this section many years ago, because a client called me almost daily to ask about the direction of markets.

Last but not least, CHG % CHG High-quality, affordable transportation LOW TREND
Dow 35294.77 1.09% 382.2 35320.97 35023.63 Strong Bull
S&P 500 4471.38 0.75% 33.13 4475.82 4447.69 Strong Bull
Crude Oil (WTI) 83.545 1.31% 1.077 83.851 82.468 Bull
Gold 1762.09 -0.30% -5.26 1760.15 1771.96 Neutral
10 Year 160.10% 1.72% 0.027 1.62 1.577 Bull
Bitcoin/USD 61179 −0.55% −340 62703 60504 Bull
US Dollar Index 94.054 0.11% 0.1 94.171 93.915 Bull
VIX 17.46 7.12% 1.16 17.7 17.2 Sell

Key drivers for the week of October 18, 2021

TIP – This is a 1-minute brief bullet-point summary. This tool gives investors and financial professionals a quick and simple list on what to look out for, and the main talking points of the week.

  • Goldman Sachs massive earnings beat boosts investor confidence, lifting stocks
  • Bond yields drop on inflation concerns and reduced central bank stimulus
  • U.S. earnings include: Tesla, Netflix, P&G, J&J, American Airlines, Whirlpool
  • Philly Fed data on housing starts and existing home sales
  • Fedspeak by Powell, Williams Quarles Waller Daly Bostic Evans Bullard Kashkara
  • Canada’s BoC Business Outlook Survey includes housing starts, CPI and retail sales
  • China reports industrial output, retail sales and fixed investment; Japan trade and CPI
  • Eurozone data include preliminary PMIs and final CPI; German PPI
  • The UK calendar includes CPI, PMI and consumer confidence

Earnings to the rescue

In September, global equities fell as a result of a variety of factors that have slowed down the growth in the world. Investor sentiment was boosted by stellar Q3 earnings from big U.S. bank, Goldman Sachs in particular, as well as better than expected U.S. Retail Sales.

The major stock market index closed with the highest gain for the week and the best month. Bonds lost ground concurrently due to the rise in risk appetite as well as fears of inflation and reduced central bank stimulus.

This week will see these same factors at work. The data slate will include key reports from around world, which should continue demonstrating the different impacts of supply chain disruptions, shortages of labor and material on activity and price. We expect to hear from many central banks, but none will change their tune.

U.S. equity markets have surged during October, undoing much of September’s downdraft. The Dow is now 4.3% higher for October, and not far from its all-time high, with the S&P 500 and NASDAQ up 3.8% and 3.1% firmer. Treasuries, meanwhile, have been losing ground as inflation fears continue to rise. “transitory” Looks like the rate hike is going to be delayed longer than anticipated. Also, there’s increasing concern over QE tapering which has turned into a fear of rate increases.

Indeed, the 2-year note tested 0.400% last week — a 0.4-handle has not been seen (closing basis) since March 19, 2020. The 10-year rate was 1.64%. The curve was unsure whether it should be steeper or flatter and fluctuated between 123 and 114 basis points on the week versus 129 basis points from last Monday.

The Treasuries could be choppy this week, but the increase in risk appetite since last week should continue the upward trend in stocks in the near term.

This week, earnings will be a major topic for many banks and other sectors of the economy. IMB, State Street and Albertsons are the first to report on Monday.

Headlining Tuesday are J&J, P&G, Netflix, Philip Morris, Canadian National Railway, Bank of New York Mellon, Ericsson, Travelers, Fifth Third Bancorp, Synchrony Financial, Kansas City Southern, Dover Corp., Halliburton, and Signature Bank.

On Wednesday, the spotlight will be focused on Tesla along with Verizon. Abbott Labs. Anthem. Lam Research. CSX. Crown Castle. Canadian Pacific Railway. Biogen. Kinder Morgan. Discover Financial Services. PPG. Nasdaq. Equifax. Las Vegas Sands. Baker Hughes. Citizens Financial. Teledyne.

Thursday has Intel, Danaher Corp., AT&T, SAP, Union Pacific, Snap, Blackstone, Marsh & McLennan, Freeport-McMoran, Chipotle, Dow, Valero Energy, Southwest Airlines, Quest Diagnostics, American Airlines, Whirlpool, and Snap-On. Honeywell is represented by American Express. HCA Healthcare. Schlumberger. Barclays. Corp. Regions Financial and Seagate Technology Wrap up on Friday.

The data calendar contains industrial production, the Philly Fed Manufacturing Index, housing starts and existing home sales. Also included are the NAHB report, jobless claims and Markit’s composite and services indexes. The September industrial production is expected to rise 0.2% on Monday after increasing 0.4% in August. This would be the 7th consecutive monthly increase, and 8th in the nine-month period to date.

For manufacturing, we expect a 0.3% increase and for mining a 1.0% rise. However, utilities will see a drop of -1.5%. Vehicle assembly should slow down from August’s 9.5 million vehicles to 9.4 million, with the ongoing shortage of semiconductors causing a big hit.

The Baker-Hughes Rig count should continue to increase, and mining output will also rise. Capacity usage should increase to 76.5%, up from 76.4%. The Philly Fed (Thursday) index is projected to fall -8.7 ticks, to 22.0 by October. This will erase much of the 11-point rise to 30.7, in September, up from 19.4 points in August. The index was at its 48-year high in April, when it reached 50.2. It has averaged 30.7% over the past six months.

Housing starts in September are expected to rise to 1,630 mln after rebounding 3.9% in August to 1.615 million after falling -6.2% in July to 1.554 million. The number of starts in March was at a high for 15 years. Permits should improve to 1.724mln, after surging 5.6% from 1.721mln to 1.724mln. In January, permits reached a record high of 1.883mln. The existing home sales are expected to increase by 1.2% in September to 5.950 mln, following a -2.0% decline to 5.880 million in August. Last October, sales reached a record high of 6.860 million.

Fedspeak could be an interesting dynamic in the market. New York Fed has conducted a consumer survey that shows the expectation for 1-year inflation to be 5.31%. This survey shows that the upper bound indicates at least 25 percent of respondents expect inflation to be at least 87% in one year. The 3-year inflation expectation has also increased, reaching a new high of 4.19%.

Money managers also look at the Treasury yield curvature’s potential for continuing to flatten. This historically means that investors bet on recession. Akira Takei of Asset Management One warned today in an article on Bloomberg that “There is a good chance that the U.S. will enter recession [over the next year]. The curve is still too steep.”

Wednesday will also feature The Beige Book. The Friday 11 ET session will feature Powell as the Chair. He will take part in a discussion panel on financial stability and post-covid issues (sponsored by South Africa’s Central Bank). Williams from the NY Fed, one of three policymakers who are key to the Fed, will be part of a moderated panel discussion hosted by China 40 Forum (Thursday). Quarles will speak on Monday about financial stability, but his role as VC for Supervision ended on Wednesday. He will speak about the outlook of the economy on Wednesday.

The nonvoting dove Kashkari discusses financial inclusion (Monday). Daly, a dovish Daly who supports the tapering of QE soon, makes her opening remarks on Tuesday and discusses climate change on Friday. Waller discusses economic forecasts on Tuesday and Thursday. Bostic discusses long-term unemployment on Tuesday, while Barkin speaks to the South Carolina Chamber of Commerce on Tuesday. Bostic (Tuesday), Kashkari (Wednesday), Evans and Bullard all participate in a discussion on racism and the economics.

US Politically – Congress has some movement to pass a smaller spending bill, but we think that the bill will be no more than $1.5 trillion. The bill will require Republican support in the House, but that is still to be determined.

This week in Canada, there are a lot of events and data releases. Housing starts begin (Monday), and the pace is expected to rise from 260k in August to 265k this September.

As price pressure escalates amid supply disruptions, strong consumer demand, and rising prices, the BoC Business Outlook Survey for Q3 will focus on this issue. In that vein, we will get the latest updates on CPI with the release of the September report Wednesday’s (Wednesday) is expected to show a significant acceleration from August’s 4.1% pace to 4.4% (y/y). CPI will rise 0.2% (m/m) in September, after a 0.2% increase in August.

The week concludes with the retail sales report (Friday), which is expected to bounce back 1.0% after the -6.6% decline in the previous month. Meanwhile, the ex-autos composite will rise by 1.5%, more or less reversing a 1.0% drop from July. Lane, the Deputy Governor at the BoC participates in an expert panel discussion on Monday. “Harnessing innovation for the public interest.”

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