Weekly Market Commentary - October 29th, 2021

Ed Mertiri |

TV Interviews with Erin Gibbs

Stocks most vulnerable to earnings reports misses and risk in the market

TD Ameritrade TV

Macro Outlook - Inflation, Equity Valuations, Remainder of 2021


Third quarter earnings season is in full swing. The past week and this week are the two busiest. Currently a little less than half the S&P 500 companies have reported 3rd quarter results. While there were a couple surprising misses last week, overall the large cap US market looks to have managed the 3rd quarter much better than expected.

About 84% of companies have beaten profit expectations. This is a relatively high beat rate. Prior to the pandemic, the five year beat rate was 72%. Since the pandemic the average beat rate has been 83%. S&P 500 companies have significantly improved beating analyst estimates since the pandemic. Perhaps Wall St analysts will be less pessimistic going forward as the world moves towards a world where COVID is endemic, but not hindering business activity.

Looking ahead we’re already seeing some indications of which sectors analysts think will do better or worse in the coming months. Profit growth has been revised up for the S&P 500 for the next three quarters (Q4 2021, Q1 2022 and Q2 2022).

Financials, Energy and Real Estate all have higher expected profit growth from just a month ago. This is not surprising given the exceptional reported earnings and higher interest rates.

Industrials, Consumer Discretionary and Consumer Staples all had downward revisions for the next three quarters over the past month. Also not surprising given the inflation environment.

Ultimately there have been more upward profit revisions than downward, resulting in even higher profits for the S&P 500 index for the next nine months. Perhaps this explains the market moving higher even when notable companies’ reports disappoint.    

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