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October 31, 2022 - Markets Climb on Resilient Earnings and Better-Than-Anticipated GDP

| November 01, 2022
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Index Performance

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U.S. and International Equities

Markets Finish Mostly Higher

Stocks finished higher as Q3 earnings, so far, have come in better-than-expected by market participants. So far, with help from upside surprises in the energy space, S&P 500 earnings are now tracking to a more than 2% year-over-year increase. The overall earnings gain would be over 3% excluding Boeing’s charges, which is in line with LPL Research expectations overall. Energy sector earnings increased ahead of healthcare and is now generating the biggest upside surprise among S&P sectors thus far at 12%, compared to 7% for healthcare.

Fixed Income Mostly Higher

The Bloomberg Aggregate Bond Index finished the week higher as yields declined as some traders believe that the Federal Reserve’s rate-tightening pace will subside. High-yield corporate bonds, as tracked by the Bloomberg High Yield index, gained ground for the week, mirroring their equity counterparts.

The Japanese 10-year government bond yield declined as the Bank of Japan (BOJ) increased bond purchases across the yield curve. The BOJ offered to increase bond purchases for 10- to 25-year maturities as the central bank still bucks the global trend by keeping Japanese monetary conditions ultra-loose.

Commodities Mixed

Both oil and natural gas prices finished the week higher. Many commodity analysts have noted that 2022 has seen much volatility for natural gas prices. The U.S. market for natural gas has shifted from concerns about tight supplies amid the geopolitical landscape now to the potential for lower heating fuel demand given warmer weather forecasts. The major metals, gold and silver, finished lower this week even as some traders see a possibility for less aggressive Fed rate hikes.

Economic Weekly Roundup

Q3 GDP

U.S. GDP accelerated at a 2.6% pace for the latest quarter. This beat economists’ expectations of 2.3%. A narrowing trade deficit along with an increase in consumer spending and government outlays helped increase the final percentage growth. Consumer spending increased at only a 1.4% pace during Q3, which is down from 2% during Q2. Amid an increase in borrowing costs this year, a noticeable pullback in housing caused GDP to detract, which played a role in the decrease for private investment.

October Consumer Confidence

The Conference Board’s October Consumer Confidence report revealed the job market is cooling as consumers were finding jobs harder to get in October. Tighter financial conditions may be starting to show up in the labor market. More consumers planned to buy a car within the next six months, which is somewhat of a surprise given higher borrowing costs.

The main reason for the uptick may hinge on car prices normalizing in the near future. Demand for services may be cooling as less consumers plan to travel within the next six months, especially to foreign countries. Overall, buying plans for big-ticket items such as major appliances, autos, and homes are staying fairly steady, adding some sense of stability for the economy.

Weekly Employment Report

Continuing claims for unemployment insurance for the latest week came in above economists’ expectations, whereas initial claims came in below expectations for the second straight week. Labor market conditions remain tight even though there are some signs of slowing job growth, increasing layoffs, and higher unemployment.

Week Ahead

The following economic data and potentially market-moving events are slated for the week ahead:

  • Tuesday: Bureau of Economic Analysis Total Light Vehicle Sales (Oct), Job Opening and Labor Turnover Survey Report (Sep), Institute of Supply Management Manufacturing Report (Oct), Markit Purchasing Managers’ Index Report (Oct), Construction Spending (Sep)
  • Wednesday: Federal Open Market Committee Meeting, ADP Employment Survey
  • Thursday: Weekly Initial and Continuing Unemployment Claims, Unit Labor Costs (Q3), Productivity (Q3), Trade Balance (Sep), Purchasing Managers’ Index Composite (Oct), Markit Purchasing Managers Composite Services (Oct), Durable Orders (Sep), Factory Orders (Sep), Institute of Supply Management Services Purchasing Managers Index (Oct)
  • Friday: Hourly Earnings (Oct), Average Workweek (Oct), Manufacturing Payrolls (Oct), Nonfarm Payrolls (Oct), Private Nonfarm Payrolls (Oct), October Employment Report

Next week, over 100 companies are expected to report Q3 earnings results

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