Markets generally rose, with investors keeping a watchful eye on developments in the Middle East, but at least temporarily choosing to focus on a strong start to the earnings season.
Around a tenth of the S&P500 are due to report earnings this week, and of the few which have so far stood up to the plate, the vast majority have beaten expectations on both earnings and revenues. Indeed, since the season began in earnest on Friday, estimates for earnings on the whole have been lifted to a likely annual increase of 2.2% from a previous 1.3%.
In addition, outlook comments have also been reassuring, leading to hopes that the final quarter of the year can eradicate some of the weakness seen in markets over what has been a testing summer period. Charles Schwab (NYSE:SCHW) was the latest beneficiary, rising by almost 5% after beating earnings per share estimates, adding to the initial boost of stronger numbers from the likes of JP Morgan Chase (NYSE:JPM), Wells Fargo (NYSE:WFC) and UnitedHealth (NYSE:UNH) Group.
Bank of America (NYSE:BAC), Goldman Sachs (NYSE:GS) and Johnson & Johnson (NYSE:JNJ) are features of a busy upcoming trading session, while the release of retail sales numbers will provide further colour on the actual behaviour, rather than sentiment, of the vitally important US consumer. It is expected that the data will have edged up slightly, although there will be a wary eye on the possible switch from goods and services purchasing coming from pandemic savings, to be replaced by more spending on credit.
Even so, the possibly transient return to a risk-on approach resulted in a positive session for the main indices, even if events in the Middle East threaten at any point to derail sentiment. The current hopes are that diplomatic efforts could contain the conflict to the region without escalation elsewhere, and as a result both oil and gold prices have given up some of their initial spikes as investors move into different asset classes. In the meantime, the main indices have added to their gains in the year to date, with the Nasdaq now ahead by 30%, the S&P500 by 14% and the Dow Jones by 2.5%.
Asian markets also took some solace from the cautious improvement in sentiment, although there remain regionally specific concerns. The property sector remains hamstrung by the possibility of default from the likes of developer Country Garden, while economic growth figures due for release tomorrow are expected to show a quarterly decline to under 5%, which would compare to 6.3% in the previous. As such, investor attitudes towards China remain in the balance, as any economic bounce from the previous reopening of the economy appears to have disappeared.
In the UK, wage inflation came in at 7.8% over the last quarter, outstripping inflation for the first time since during the pandemic. With job vacancies also beginning to decline, there are renewed hopes that the Bank of England will now not only be in a position to pause interest rate rises, but that the peak of the cycle has been reached. The FTSE 250 has tended to mirror the knife-edge on which the UK economy sits, with anaemic growth alongside a tightening and increasingly challenging broader environment, and is now down by more than 7% this year.
The premier index remained near the flatline in opening exchanges, trying to establish an early positive trend. A strategic overhaul at Rolls-Royce (LON:RR) which will result in the global loss of 2500 roles was well-received given savings which could amount to up to £200 million. The shares have had a stelar year so far, rising by more than 130%, as any number of factors have played into the company’s hands, not least of which has been the return to airline travel. Elsewhere, there was some weakness in the housebuilding sector, partly driven by the more recent evidence of falling house prices and faltering demand. The FTSE100 is now ahead by 2.7% this year, and could yet have its defensive qualities tested once more as global geopolitical developments remain in the spotlight.