Fri, December 03, 2021

business

Stocks approach highs as earnings refute naysayers


U.S. stocks rallied to another all-time high as fresh signs that Corporate America is delivering on lofty earnings expectations propel major indexes toward the best month in a year. Treasuries continued to gyrate, with some portions of the yield curve inverting.

The real estate, industrial and consumer discretionary industry groups led the S&P 500 to a record, putting the benchmark index on pace for a more than 6% gain in October. The Dow Jones industrial average also rebounded from Wednesday's losses. Amazon.com Inc. and Tesla Inc. helped lift the Nasdaq 100 to another record. The Treasury yield curve inverted between 20 and 30 years on Thursday for the first time since the U.S. government reintroduced a two-decade maturity in 2020.

"We have a market powered by strong earnings, generally good economic news and a calming down of the bond market, and so the path of least resistance is higher and equities remain the asset class of choice with low return potential on other asset classes," said David Donabedian, chief investment officer of CIBC Private Wealth Management.

Investors are digesting earnings from some of America's bellwether companies. Industrial bellwether Caterpillar Inc. rose after an earnings beat. Ford soared after lifting forecasts and resuming dividends. EBay Inc. dropped after reporting disappointing results late Wednesday. Amazon.com and Apple Inc. report results after the close of regular trading.

Excluding financial firms, companies in the S&P 500 that announced results have boosted net-profit margins by 40 basis points to 12.4% from the previous quarter, according to data compiled by Bank of America Corp. The improvement has spread across major industries, with all but energy and consumer staples posting better margins.

Earlier, a report showed that the U.S. economy expanded at an annual rate of 2% in the three months through September, lower than the 2.6% median estimate in a Bloomberg survey, as consumer spending slowed. The GDP price index also slowed from the last quarter, though it still rose more than analysts' expectations. A separate report showed that weekly jobless claims fell to a pandemic low.

When 20-year Treasury issuance began in May 2020, yields in the sector were about 25 basis points lower than 30-year yields. While expectations for Federal Reserve rate increases beginning next year have flattened the curve generally, demand for the 20-year point appears to be more muted than for longer-tenor securities.

The euro gained and European bonds fell after European Central Bank President Christine Lagarde said higher inflation might be around for longer than expected, though the monetary authority expects prices to start moderating next year. The ECB earlier left borrowing costs unchanged and said bond-buying would continue at a moderately lower pace. The Stoxx Europe 600 Index rose.

Global stocks are still near all-time peaks, supported by a robust corporate earnings season so far, with profit margins widening on average despite cost pressures. The risk is sentiment could weaken if investors lose confidence in the ability of policymakers to contain inflation while nurturing the economic rebound.

"As long as the economy is not going through recession or anything disastrous, but if things are delayed, if we're going on the right path, but at a slower pace -- which means the policy support persists for longer -- still positive for markets," said Lee Ferridge, head of North America multi-asset strategy at State Street, on Bloomberg TV and Radio's "Surveillance."

These are the main moves in markets:

Stocks

- The S&P 500 rose 1% as of 4:01 p.m. EDT

- The Nasdaq 100 rose 1.2%

- The Dow Jones industrial average rose 0.7%

- The MSCI World index rose 0.7%

Currencies

- The Bloomberg Dollar Spot Index fell 0.4%

- The euro rose 0.7% to $1.1679

- The British pound rose 0.3% to $1.3789

- The Japanese yen rose 0.2% to 113.58 per dollar

Bonds

- The yield on 10-year Treasurys advanced three basis points to 1.57%

- Germany's 10-year yield advanced four basis points to -0.14%

- Britain's 10-year yield advanced two basis points to 1.01%

Commodities

- West Texas Intermediate crude rose 0.6% to $83.12 a barrel

- Gold futures were little changed

Published : October 29, 2021

By : Bloomberg