Investors Exercise Caution Despite Rally: Fundamentals and Caution Guide Market Moves
Investors Exercise Caution Despite Rally: Fundamentals and Caution Guide Market Moves
By:JJ Kinahan
Strong fundamentals are backing the market's rally, yet unpredictability persists
- Market momentum is continuing as equities surge, concerns about inflation ease, and companies report robust earns and strong fundamentals.
- Commodities and interest rates are declining, signaling subdued inflation worries and economic stability.
- Investors are treading cautiously despite market optimism; they’re cautious amid potential unforeseen market shifts.
Throughout the past week, both the S&P 500 and Nasdaq Composite registered their third consecutive week of gains. The S&P 500 displayed positive momentum in 13 thirteen of the last 15 weeks, resulting in a 2.2% increase, while the Nasdaq surged by 2.4%. These gains have escalated the S&P and Nasdaq by 10% and 13% respectively since the end of October, bringing them within a mere 2% of their yearly highs.
Concerns surrounding inflation seem to be diminishing as evidenced by notable declines in commodity prices and interest rates. Oil prices have tumbled by 20% since September's end, while Natural Gas saw a 19% drop since October's close. Correspondingly, the yield on the 10-year note plummeted by 57 basis points to 4.44%, while the two-year yield declined by 37 basis points to 4.83% since mid-October. Despite weaker-than-anticipated economic indicators driving this reduction in interest rates, the overall growth remains positive, allaying fears of a recession.
Positive developments
Reasons for optimism include the potential resolution of the United Auto Workers' strikes through new worker-backed contracts, along with Congress and the White House passing a bill ensuring government operations until early next year, averting potential spikes in unemployment rates.
Earnings reports reveal uplifting statistics: 82% of S&P 500 companies surpassed earnings per share expectations, contributing to a 4.3% year-over-year earnings growth rate. This trend surpassed the 10-year average in both the number and size of earnings surprises. Looking ahead, 64 companies issued negative guidance while 32 issued positive guidance. The S&P 500's forward 12-month price-to-earnings ratio, standing at 18.6, slightly below its five-year average, reinforces the ongoing equity surge grounded in fundamental support.
Moreover, the decline in certain commodities and decreased corporate concerns about inflation was evident. The frequency of inflation mentions during earnings calls is at its lowest since 2Q of 2021, aligning with a consistent decrease in inflation and recession references over the past five quarters.
Strong fundamentals
The market's rally appears substantiated by fundamentals, portraying controlled inflation and successful economic navigation, potentially due to Jerome Powell's strategies. Yet, market unpredictability persists, urging caution and prudence in investment decisions. The adage "bulls make money, bears make money, pigs get slaughtered" echoes the necessity of balanced investment strategies.
As Thanksgiving approaches, the message extends warm wishes, emphasizing the simplicity and joy of this holiday—a time for indulgence in food, football and cherished moments with loved ones. Despite the positive market trends, it's prudent to maintain an investment strategy and, as always, exercise caution and balance in decision-making.
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
For live daily programming, market news and commentary, visit tastylive or the YouTube channels tastylive (for options traders), and tastyliveTrending for stocks, futures, forex & macro.
Trade with a better broker, open a tastytrade account today. tastylive, Inc. and tastytrade, Inc. are separate but affiliated companies.
Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.
tastylive content is created, produced, and provided solely by tastylive, Inc. (“tastylive”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, digital asset, other product, transaction, or investment strategy is suitable for any person. Trading securities, futures products, and digital assets involve risk and may result in a loss greater than the original amount invested. tastylive, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastylive is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparisons, statistics, or other technical data, if applicable, will be supplied upon request. tastylive is not a licensed financial adviser, registered investment adviser, or a registered broker-dealer. Options, futures, and futures options are not suitable for all investors. Prior to trading securities, options, futures, or futures options, please read the applicable risk disclosures, including, but not limited to, the Characteristics and Risks of Standardized Options Disclosure and the Futures and Exchange-Traded Options Risk Disclosure found on tastytrade.com/disclosures.
tastytrade, Inc. ("tastytrade”) is a registered broker-dealer and member of FINRA, NFA, and SIPC. tastytrade was previously known as tastyworks, Inc. (“tastyworks”). tastytrade offers self-directed brokerage accounts to its customers. tastytrade does not give financial or trading advice, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastytrade’s systems, services or products. tastytrade is a wholly-owned subsidiary of tastylive, Inc.
tastytrade has entered into a Marketing Agreement with tastylive (“Marketing Agent”) whereby tastytrade pays compensation to Marketing Agent to recommend tastytrade’s brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastytrade. tastytrade and Marketing Agent are separate entities with their own products and services. tastylive is the parent company of tastytrade.
tastycrypto is provided solely by tasty Software Solutions, LLC. tasty Software Solutions, LLC is a separate but affiliate company of tastylive, Inc. Neither tastylive nor any of its affiliates are responsible for the products or services provided by tasty Software Solutions, LLC. Cryptocurrency trading is not suitable for all investors due to the number of risks involved. The value of any cryptocurrency, including digital assets pegged to fiat currency, commodities, or any other asset, may go to zero.
© copyright 2013 - 2024 tastylive, Inc. All Rights Reserved. Applicable portions of the Terms of Use on tastylive.com apply. Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastylive’s podcasts as necessary to view for personal use. tastylive was previously known as tastytrade, Inc. tastylive is a trademark/servicemark owned by tastylive, Inc.