Markets register back-to-back gains on resilient earnings

written on October 19, 2022

The war in Ukraine has tended to increase uncertainty regarding inflation and growth prospects. When and with what consequences this war will end is pure speculation, but capital markets are expected to build a certain immunity to the headline risks in the coming weeks. The medium- to long-term consequences, on the other hand, could be significant. It is possible that we are at the beginning of a new bloc formation or a new Cold War. This would put a significant damper on globalization and further fuel higher structural inflation. 

US equities finished higher for a second day on Tuesday as solid quarterly results from Goldman Sachs and Lockheed Martin lessened worries of a weak earnings season. The Dow Jones Industrial Average rose 1.1%, the S&P 500 added 1.1%, and the Nasdaq Composite increased 0.9%. Shares in Europe also traded higher as the markets appeared to continue reacting positively to the UK’s reversal decision in its mini budget. 

Summary

  • Asian equity markets were mostly higher on Wednesday but further gains were capped by slight falls in Chinese shares. China’s mainland blue chips lost 0.2% while Hong Kong’s Hang Seng index fell 0.1%. Elsewhere, Japan’s Nikkei advanced 0.4%, Australia’s ASX gained 0.4%, while South Korea rebounded 0.5%. 
  • European and US equity markets were seen opening higher later in the day, looking to consolidate recent gains. 
  • Oil prices rebounded from two-week lows on Wednesday as the European Union’s latest sanctions on Russian crude threatened to undermine a planned release of emergency oil reserves by the US. The EU would impose shipping restrictions on tankers transporting Russian crude above an agreed price threshold. 
  • In economic news, the Federal Reserve’s industrial production and capacity utilisation report showed both rose more than expected. Industrial production gained 0.4% month-on-month in September, compared to estimates of a 0.1% increase, and versus August’s upwardly revised 0.1% decrease. Capacity utilisation rose to 80.3%, versus estimates of a decline to 80.0% from the prior month’s upwardly revised 80.1% rate. 
  • Goldman Sachs reported a smaller-than-expected drop in quarterly profit as a boost in net interest income cushioned the blow from a slowdown in investment banking. The investment bank also announced that it is reorganising its business into three units, namely asset and wealth management, global banking and markets, and platform solutions. 
  • Lockheed Martin posted stronger-than-expected quarterly revenue and maintained its 2022 revenue view. The weapons-maker announced an additional $14 billion in share repurchase authority and noted that it anticipates executing a $4.0 billion accelerated share buyback in Q4. 
  • Johnson & Johnson also reported better-than-expected Q3 results with an EPS of $2.55 on revenue of $23.79 billion. The company reaffirmed but narrowed the range of its full-year adjusted EPS and adjusted operational sales guidance. 
  • Netflix reversed customer losses and provided a slightly more bullish outlook than Wall Street expected when it released its quarterly results after the market close yesterday. From July through September, the company attracted 2.4 million new subscribers worldwide, more than double the 1.07 million consensus forecast. Shares rallied by over 14% in extended trading. 
  • United Airlines yesterday forecasted a profit for the current quarter well above Wall Street estimates after reporting higher-than-expected third-quarter earnings due to a robust rebound in travel demand. Shares were up more than 6% in extended hours. 

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Life’s full of mysteries. Your money shouldn’t be one of them.