Earnings Season Shines: 80% of S&P 500 Companies Exceed Expectations

Equities, particularly the S&P 500 and Nasdaq Composite, had significant gains

• Equities surged as bond yields fell, delivering a stellar week for investors.
• Positive earnings reports boost confidence, with Apple's outlook in focus.
• The new employment report hints inflation is under control, while stocks regain moving averages on strong volume.

The recent performance in the financial markets has been nothing short of remarkable. Equities, particularly the S&P 500 and Nasdaq Composite, had a stellar week, with significant gains.

Last week, the S&P 500 closed at 4,117, but by yesterday, it had surged to 4,317, marking a nearly 5% increase. The Nasdaq Composite has mirrored this impressive run, also experiencing a nearly 5% gain. Simultaneously, we witnessed a substantial rally in the bond market as interest rates dropped significantly. As we await the impact of today's employment report, it's safe to say investors had much to celebrate this week.

Yield on 10-year note falls to 4.64%

A mere two weeks ago, yields on the 10-year Treasury note hit a decade high of 5%. In premarket trading, that yield has now fallen to 4.64%, representing a substantial 36-basis-point shift. To put this into perspective for those unfamiliar with financial jargon, it's akin to witnessing a baseball player hitting for the cycle, a basketball player recording a triple-double or a hockey player scoring a hat trick—all in a single day. If this analogy leaves you scratching your head, then the key takeaway is that the recent movements in interest rates are extraordinary and noteworthy.

While interest rates have been on a downtrend, there has also been a wave of positive earnings reports. According to the Wall Street Journal, an impressive 80% of S&P 500 companies that have reported earnings have exceeded expectations, surpassing the historical average of 67%. Some stocks, like Starbucks (SBUX), which saw a 9.5% increase yesterday, and Roku (ROKU) with a remarkable 31% gain, have been richly rewarded. However, the focus is now on one of the biggest players, Apple (AAPL), and the impact of its earnings report remains uncertain.

Apple earnings beat expectations

Apple recently reported earnings that beat expectations across the board, but a cautious holiday forecast akin to the Grinch dampened investor sentiment, causing a premarket dip of approximately 2%. It's worth noting the remarkable rally Apple enjoyed leading up to these earnings. After hitting a low of just over $165.50 last week, the stock soared to nearly $178 on Thursday, meaning that despite the slight premarket decline, Apple had a positive week overall.

The most significant news of the day, however, is the employment report. Initial estimates anticipated the creation of 180,000 new jobs and an unemployment rate of 3.8%. The actual figures showed that 150,000 jobs were added, and the unemployment rate edged up to 3.9%. Notably, employment figures for August and September were revised slightly lower. It's essential to consider the impact of the United Auto Workers strike in today's report, as the motor vehicles category saw a loss of 33,000 jobs primarily due to the strikes. Nevertheless, the weaker-than-expected numbers provide hope that inflation may be coming under control.

In summary, it has undeniably been a favorable week for investors. Yields have dropped, equities have gained, and these gains have occurred on robust trading volume, a positive sign. A helpful metaphor for understanding the relationship between prices and volume is that of a shopping cart. Just as it's easier to push an empty cart than one filled with groceries, prices can move more readily on low volume.

However, with strong volume backing the recent gains, it's akin to pushing a loaded cart, requiring determination and effort. Both the S&P 500 and Nasdaq Composite have comfortably reclaimed their 21 and 200-day moving averages, and investors are hopeful they can break through their respective 50-day averages next. As always, it's wise to stick with your investment strategy and long-term plans as the financial markets continue to offer exciting developments and opportunities.

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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