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Expectations of the strong earnings reports from top giants ahead this week are driving the US market higher despite a drop in industrial production for the last month of September.
On Monday, October 18, the US stock market witnessed a strong rebound after opening lower early in the day. The S&P 500 (INDEXSP: .INX) ended in green for the fourth consecutive day of trading.
Yesterday, the S&P 500 surged 0.34% ending at 4,486 levels. Similarly, the Nasdaq Composite (INDEXNASDAQ: .IXIC) also ended 0.8% in the green at 15,021.81. On the other hand, Dow Jones (INDEXDJX: .DJ) ended 36 points down at 35,258 levels.
Strong earnings report expectations from major companies have been keeping the market fueled with optimism. Later today, some of the big firms like Johnson & Johnson (NYSE: JNJ), Netflix Inc (NASDAQ: NFLX), United Airlines (NASDAQ: UAL), and Procter & Gamble shall be reporting their results for Q3 2021. Ahead this week, we have other giants Tesla Inc (NASDAQ: TSLA), Verizon Communications Inc (NYSE: VZ), and IBM (NYSE: IBM) coming up with their earnings reports.
Strong earnings season has once again put the three indices close to their record high levels. The Dow Jones is already up 1% from its record high. On the other hand, the Nasdaq Composite and S&P 500 are 2.5% and 1.3% below their respective highs.
All these three indices have been making the move to the north over the past few trading sessions. Apart from just earnings reports, positive economic data also boosted the stocks. While economists were expecting a drop in retail sales, they have rather surged by 0.7% during the last month of September. Speaking to CNBC, Edward Moya, senior market analyst at Oanda said:
“Wall Street was expecting a slowdown in spending, but it turns out the U.S. consumer is not to be messed with. Back-to-back months of better-than-expected retail sales data shows the consumer looks strong heading into the holiday season”.
US Market Gains while China Reports Slowdown
On Monday, China also reported its GDP with disappointing numbers and only a 4.9% annual growth rate in Q3 2021. This was short of the 5.2% growth expected by the economists. Last month, industrial production in China also fell short of expectations.
The US also has reported a decline in industrial production for September. However, with the earnings season in full swing, the market continues to stay upbeat. So far, 41 of the S&P 500 companies have reported their Q3 2021 results. From them, 80% of them have managed to top EPS expectations.
As per the data from FactSet, this would probably be the “third-highest quarterly growth rate for S&P 500 companies since 2010”. In a note to clients on Sunday, Ed Hyman, Evercore ISI Chairman wrote:
“Growth in 2022 seems likely to be lifted by the lagged impacts of monetary stimulus, the lagged impacts of surging Consumer Net Worth, reopening, and inventory rebuilding. Supply chain problems are likely to ease, and unfilled demand from this year is likely to be met next year. Wages are likely to increase, lifting consumer incomes.”
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