Wall Street: Overview.

The earnings season kicked off in the US a couple of weeks ago. According to FactSet, the Q3 2023 results for 49% of the companies in the S&P 500 index are already known.

Profit

Out of the companies that have reported so far, 78% have posted earnings per share above analysts’ consensus forecasts. This figure surpasses the 5-year average of 77% and the 10-year average of 74%.

On average, the reported earnings of these companies exceeded analysts’ estimates by 7.7%, which is slightly below the five-year average of 8.5% but above the ten-year average of 6.6%.

The profit growth for Q3 stands at 2.7%, incorporating the results of the companies that have already reported and estimates for the remaining ones.

If 2.7% becomes the actual result for the quarter, it will mark the first quarter of profit growth since Q3 2022.

8 out of 11 sectors report year-over-year revenue growth, led by the communication services, consumer staples, and financial sectors. Meanwhile, three sectors – oil and gas, materials, and healthcare – are reporting (or are expected to report) a decline in profits compared to the previous year.

Revenue

62% of the companies that have reported so far have announced revenue growth above estimates, which is below the 5-year average of 68% and the 10-year average of 64%. Collectively, their revenue exceeds estimates by 0.8%, which is below the 5-year average of 2% and the 10-year average of 1.3%.

The revenue growth rate stands at 2.1%, slightly higher than last week’s result of 1.8%. If 2.1% becomes the actual result, it will represent the 11th consecutive quarter of revenue growth for the index companies.

Forecasts

Analysts continue to anticipate profit growth. For Q4 2023, they forecast a rise of 5.3%. For the entire year of 2023, Wall Street projects a profit increase of 0.9%. For 2024, an annual growth of 11.9% is expected, which is below the previous estimate.

According to FactSet, the forward P/E ratio for the S&P 500 stocks over a 12-month horizon stands at 17.1. This is below the 5-year average of 18.7 and the 10-year average of 17.5.

This week, 162 companies from the S&P 500, including 4 from the Dow 30, are set to report their Q3 results. Notable earnings reports include those from SoFi, McDonald’s, Pfizer, AMD, BP, PayPal, Airbnb, Kraft Heinz, Apple, Block, and others.

Main Points

• This week, the Federal Reserve will hold a two-day meeting on the key interest rate, with the likelihood of a monetary pause nearing 100%. However, there’s no talk of easing the monetary policy until summer 2024.

• Stock indices approach the Fed’s decision at five-month lows. The S&P 500’s technical supports have been tested, renewing hopes for a market rebound.

USA

Leading stock indices closed mixed on Friday: the Dow Jones Industrial lost over a percent, the broad-market S&P 500 was down 0.5%, while the tech-heavy NASDAQ Composite showed a slight gain. This is somewhat encouraging as the tech indicator usually leads the broader market trend. However, during the session, the market managed to rewrite lows since late May. Factors like geopolitical tensions, a mixed corporate earnings season, expectations of a prolonged high Fed rate, and bond market tensions continue to favor bearish sentiments.

Expectations for the Fed meeting are clear: after the two-day gathering, the key interest rate will remain at 5.5%, with the likelihood nearly 100%. But investors are assessing the duration of the tight monetary policy cycle, with chances of easing only appearing in early summer 2024. This means companies will have to endure an era of expensive credit for a while, and market participants will consider the impact of debt on business efficiency.

From a technical perspective, the planned sharp rebound in early October faltered, and after the sell-offs in the latter half of the month, the S&P 500 couldn’t even hold the crucial 4200 point level, inevitably leading to a drop to 4100 points. At the session’s low, it was at 4103 points. Essentially, another support has been reached. The market’s local oversold state, combined with the Fed factor for shorts, might lead to a slowdown in the decline and even a technical rebound. The previously breached 4200 point support now serves as an evident recovery level and could be tested in the upcoming sessions.