Monday witnessed a surge in U.S. stock futures as investors geared up for a pivotal week marked by significant events: the Federal Reserve’s rate decision, the release of the jobs report, and Apple’s earnings report. Despite the market being in a corrective phase, the primary spotlight remained firmly on the Federal Reserve’s rate determination. Earnings and economic data for the third quarter displayed resilience, even within the context of a market undergoing correction.
On this specific day, the Dow Jones Industrial Average received a substantial boost courtesy of McDonald’s, with the fast-food giant’s shares gaining 2% during premarket trading. This surge followed the release of their third-quarter results, which not only surpassed but exceeded analyst expectations. This stellar performance was largely attributable to price increases that fortify same-store sales in the United States.
SoFi Technologies experienced remarkable gains, with its shares surging by over 5%. The financial services company reported robust third-quarter revenue figures and raised its full-year outlook, adding to the prevailing positive sentiment in the market.
These developments came on the heels of a challenging period for the S&P 500, which had entered correction territory the previous week, registering a 2.5% decline and retracting 10.6% from its 2023 peak. In October, the index recorded a 4% downturn, potentially signaling its third consecutive negative month, a trend not observed since the onset of the pandemic in 2020.
Economic data for the third quarter of 2023 presented a mixed picture. On a positive note, real GDP growth surged to an impressive 4.9%, surpassing expectations, fueled by robust consumer spending and inventory investment. However, inflation remained elevated, with the PCE price index rising by 2.9% in the third quarter, exceeding the Federal Reserve’s target inflation rate of 2%. Other economic indicators for the third quarter included a low unemployment rate of 3.5%, albeit with wage growth slowing to 3.9%, and a deceleration in business investment.
Third-quarter economic data hinted at ongoing growth for the U.S. economy, albeit at a more tempered pace compared to prior quarters. Inflation concerns lingered, and there were indications that economic growth might further decelerate in the fourth quarter.
Investors remained vigilant, closely monitoring economic data in the upcoming months, with a focus on the U.S. economy’s ability to sustain growth amidst the backdrop of rising interest rates and inflation.
Third-quarter earnings data exhibited strength, with numerous companies surpassing analyst expectations. FactSet data indicated that 78% of S&P 500 companies reporting earnings had exceeded estimates, surpassing both the 5-year and 10-year averages. Aggregate earnings outperformed estimates by 7.7%, slightly below the 5-year average but above the 10-year average.
Notable sectors with robust earnings growth included energy, financials, and technology. Energy companies benefited from elevated oil and gas prices, while financial institutions profited from rising interest rates. Technology firms also posted solid performances, particularly in the domains of cloud computing and digital businesses.
Looking forward to the fourth quarter of 2023, analysts projected earnings growth of 11.2% and revenue growth of 5.3%. This suggests that stocks may be oversold in a market that has faced considerable challenges.
On a positive note, UAW strikes appeared to be nearing resolution, signs of progress emerged in Washington, and the government had a speaker. However, global conflicts continued to escalate, potentially introducing volatility to the stock market.
It is imperative to underscore the notion that the United States retains its position as the world’s strongest economy, serving as a global safe haven for investments, regardless of ongoing global conflicts. Anticipated market volatility is expected to persist in the short term, given ongoing economic challenges, global geopolitical tensions, and developments in Washington concerning the debt issue. Our unwavering focus remains on the long term, identifying value stocks with strong products and solid balance sheets. Investors are encouraged to maintain vigilance and employ effective risk management strategies.
Key Takeaways:
• The S&P 500 is in correction territory, but investor optimism prevails ahead of the Federal Reserve’s rate decision, the release of the jobs report, and Apple’s earnings report.
• McDonald’s and SoFi Technologies delivered robust earnings results, bolstering market sentiment.
• Economic data for the third quarter exhibited mixed trends, with robust GDP growth but persistent inflation.
• Analysts anticipate earnings growth of 11.2% and revenue growth of 5.3% for the fourth quarter of 2023, suggesting potential oversold conditions in the market.
• Global conflicts continue to escalate, potentially introducing volatility to the stock market.
• The United States retains its status as the world’s strongest economy, and the market remains a safe haven for global investments, particularly in the U.S. Treasury Market.