Equity Markets Reach New Heights Amid Earnings Season Uncertainty and Global Strife
By:JJ Kinahan
Equity markets are witnessing a surge that’s achieving unprecedented milestones. Last week, the S&P 500 marked a historic closure, experiencing a remarkable gain of 1.17%. Concurrently, the Nasdaq Composite is inching closer to its all-time highs, boasting a gain of just over 2.25%.
But as we enter earnings season, coupled with crucial economic data preceding the Jan. 31 Federal Open Market Committee meeting, the trajectory of stocks in the coming weeks remains uncertain.
In the early stages of earnings season, 43 stocks in the S&P 500 have already reported earnings. According to Barron's, an impressive 88% exceeded earnings estimates. However, an intriguing trend emerges as 60% of these companies witnessed a decline in their stock prices the following trading day.
Even more disconcerting is the fact that 72% of these companies have lagged behind the S&P since their earnings reports. This raises concerns, especially considering that investors have already significantly adjusted their earnings expectations.
In October, consensus estimates for( S&P 500 projected 11% earnings growth in the fourth quarter, but these estimates have since been slashed to a modest 4.5%. The upcoming week will feature earnings reports from major players such as airlines, CSX (CSX), IBM (IBM), Netflix (NFLX), Johnson and Johnson (JNU), Tesla (TSLA), and Visa (V).
Forward-looking statements accompanying earnings reports will be important. Analysts are anticipating 11% earnings growth for 2024, and it remains to be seen how these projections align with the present expectations. Notably, if companies meet these growth rates, the price/earnings (P/E) ratio for the S&P 500 will stand at 20, consistent with its historical average. However, falling short of earnings expectations will elevate this ratio.
While Macy’s isn’t reporting earnings this week, the retailer is under scrutiny because of the $21 per share acquisition offer from Arkhouse Management and Brigade Capital Management. Macy's promptly rejected the bid, but the acquirers expressed willingness to revise their offer. This follows Macy's recent initiatives to enhance its performance, including a workforce reduction of 2,350 employees.
Turning to the economic calendar, significant reports are scheduled for release. Thursday will see the unveiling of durable goods orders and the initial reading of fourth-quarter gross domestic product (GDP). On Friday, the personal consumptions expenditures report—the Federal Reserve’s preferred measure of inflation—will be disclosed. Anticipation for an interest rate cut in March has dipped below 50%, down from nearly 80% at the beginning of 2024, a trend that warrants close monitoring.
Despite tumultuous global events, market volatility has shown no substantial increase this year. The VIX, a measure of market volatility, closed Friday at 13.30, well below its historical average. This stability persists despite heightened tensions in the Middle East, dark rhetoric from North Korea, the ongoing conflict in Ukraine, recent elections in Taiwan and the upcoming U.S. election cycle.
While the apparent lack of response in market volatility is perplexing, caution against complacency is advised. Staying aligned with long-term investment plans and objectives remains prudent amid dynamic global events.
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.