Record Earnings, Record Highs

By Nicholas Jasinski |  Monday, October 25 Earnings Power. The Dow Jones Industrial Average and S&P 500 indexes hit record highs today, rising through the day before easing slightly into the close. The Dow ticked up 0.2%, the S&P 500 rose 0.5%, and the Nasdaq Composite gained 0.9%. Treasury yields fell today as the prices of the securities increased. Long-term yields decreased less than short-term ones, making the upward sloping yield curve steeper. That dynamic is called a bull steepener, which can be a signal of short-term optimism about stock prices. Third-quarter earnings season has been the trigger for the market's recent rally—a rise of some 5% since Oct. 4. As usual, results have been stronger than expected. S&P 500 companies are expected to grow earnings per share by 31.6% in the quarter, and they're on pace for almost 39%, according to data from Credit Suisse's Jonathan Golub. Some 82% of companies that have reported so far have beaten estimates. That has pushed aside for the time being concerns about inflation and widespread supply-chain challenges. Barron's Jacob Sonenshine reports: Though companies are still experiencing rising costs as supplies are limited, firms are still able to keep their profit margins growing—and investors aren’t yet concerned that the supply chain challenges will linger in the future. 'Companies have cited margin issues and supply chain disruptions, but so far managements have been able to navigate these issues and investors are looking past the disruptions as temporary and are instead focusing on continued strong demand,' wrote Tom Essaye, founder of Sevens Report Research.  Supply chain issue aside, investors simply don’t want to miss out on future stock gains. Retail investors have been quick to buy up stocks this month. 'People have a lot of liquidity,' says Dan Genter, chief investment officer of RNC Genter Capital Management. 'People start to move money into the market because they’re afraid they’re going to get left behind.' Facebook was this evening's earnings highlight. The social-media giant both narrowly missed Wall Street's revenue forecast but topped earnings per share estimates. Facebook shares had sold off on Friday following Snap's results on Thursday evening, when it warned that software changes made by Apple were hurting advertising revenues. That didn't have as big of an impact in the third quarter as some investors had feared. But Facebook gave a fourth-quarter revenue target below what analysts were expecting, reflecting “the significant uncertainty we face in the fourth quarter in light of continued headwinds from Apple’s iOS 14 changes, and macroeconomic and COVID-related factors," Facebook said. Barron's Connor Smith covered Facebook's third-quarter report here. Next up tomorrow among the Big Tech crowd are Microsoft and Alphabet, followed by Apple and Amazon.com later in the week. Those are among the 151 S&P 500 companies scheduled to report this week, followed by another similarly busy week next week. Plus, a Federal Reserve meeting where the central bank is widely expected to announce a tapering plan. There's a lot on investors' minds these days.

 

DJIA:  +0.18% to 35,741.15 S&P 500: +0.47% to 4,566.48 Nasdaq: +0.90% to 15,226.71 The Hot Stock: Tesla +12.7% The Biggest Loser: Ball -5.1% Best Sector: Consumer Discretionary +2.5% Worst Sector: Utilities -0.4%