Earnings Season Kickoff: Procter & Gamble Impresses, ASML Forecast Dampens Chip Sector

Also, China's GDP growth boosts global markets as focus shifts to Netflix and Tesla earnings

• A surge in retail sales temporarily rattled the markets, but prices displayed resiliency displayed with minor end-of-day fluctuations.
• Earnings season began with Procter & Gamble outperforming, while ASML's forecast disappointed the market.
• China's GDP growth is strengthening, lowering the U.S. dollar, but all eyes are on Netflix and Tesla post-market.

A surprise surge in retail sales figures cast a brief shadow over the markets at the start of the day yesterday. However, stocks demonstrated remarkable resilience, ultimately ending the day relatively unchanged. The S&P 500 remained largely stable, while the Nasdaq Composite experienced a modest 0.3% dip. Amid global conflict, domestic political turmoil and the commencement of earnings season, the market's stability and its solid foundation will be put to the test in the coming days.

Yesterday's retail sales report revealed a robust 0.7% increase, surpassing expectations of 0.3% growth. This impressive performance was accompanied by a revision to August's data, which saw sales revised from a 0.6% increase to an even stronger 0.8%. The report triggered a fall in bond prices, pushing yields on 10-year and two-year notes to their highest levels of the year. Despite the continued economic strength, the likelihood of an interest rate hike by the Federal Reserve remains low, according to the Chicago Mercantile Exchange, or CME. As things stand, it appears improbable that the Fed will raise rates again this year.

In the international arena, China reported third-quarter growth of gross domestic product (GDP) of 4.9%, driven primarily by a resurgence in consumer demand. This figure exceeded forecasts and aligned more closely with the government's target of 5% growth, marking a positive development for the previously sluggish Chinese economy. Furthermore, the report helped alleviate concern regarding the need for additional stimulus measures, which in turn exerted downward pressure on the U.S. dollar.

Amid the multitude of global events, earnings season is set to take center stage for the financial markets. Procter & Gamble (PG) reported overnight, exceeding expectations in both revenue and earnings. However, these gains were largely attributed to increased prices, as overall volume fell by 1%. In premarket trading, Procter & Gamble's shares rose by just under 1.5%.

Dutch company ASML (AMSL) also reported earnings. Despite outperforming profit expectations, the company's shares dipped by slightly over 3% in premarket trading because of a disappointing 2024 forecast. The company specializes in producing machines for advanced computer chip manufacturing and wields significant influence in the chip sector. The lackluster outlook sent ripples through the sector, causing the shares of several chip companies to decline. In addition, the Biden Administration's imposition of further trade restrictions on advanced chip technology has added to the downward pressure on chip stocks.

Following the market's close, Netflix (NFLX) is scheduled to report earnings. Besides top- and bottom-line growth, specific metrics will be closely monitored, including projected revenues of $8.53 billion and an anticipated 6.2 million new subscribers. Notable areas of interest include the number of sign-ups for the ad-supported pricing plan, efforts to curb password sharing and potential announcements of new pricing tiers.

Tesla (TSLA), another major player, is also slated to report post-market. The electric vehicle manufacturer has been aggressively reducing prices throughout the year to gain market share, even though this strategy has compressed margins. Consequently, market watchers will be keen to hear about margin developments and will expect to gain insight into 2024 delivery guidance. This may include updates on the much-anticipated cyber truck and clarity on delivery expectations for that product.

In premarket activity, the S&P 500 dipped by just under 0.5%, while the Nasdaq experienced a slightly greater decline of over 0.5%. Volatility has increased by 2.25%, with the VIX now standing at over 18. Oil prices have risen by more than 2%, partly due to China's better-than-expected economic data and concern over Middle East conflicts. Given the current climate of heightened volatility stemming from various global events, the response to tonight's earnings releases will either intensify existing concern or provide a sense of reassurance. In this turbulent environment, it is essential to remain aligned with your investment plans and long-term objectives.

JJ Kinahan is CEO of IG North America—which includes tastylive, tastytrade and IG's FX Business. Kinahan traded for 21 years at the Chicago Board Options Exchange. He serves on the CBOE Advisory Board and the SIFMA Options Committee. @thejjkinahan 

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