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Investor's Business Daily 11 October, 2021 - 10:31pm 31 views

There are some concerns about that path, however. Namely, the issues that industries are experiencing as staffing shortages impact the supply chain, which could hurt the ability of retailers to get enough goods to sell to consumers this holiday season.

Expectations are for the second half — which is typically bigger, thanks to back-to-school and holiday shopping — to produce the biggest profit for the year as well. But companies are starting to get nervous about the supply-chain issues that have popped up and could get in the way of continued earnings power.

So far this young earnings season, 21 companies have reported third-quarter earnings, and nearly three-fourths of them — 15 of the 21 — have mentioned negative effects of supply-chain disruptions in their earnings calls, FactSet Senior Earnings Analyst John Butters wrote in a note Friday. Just behind, with 14 of the 21, was staffing issues and labor costs, which are believed to be at the heart of the supply-chain issues.

For investors, the prospect of supply-chain and staffing issues getting in the way of an earnings beat is not a small matter. The S&P 500 is trading well ahead of its five- and 10-year average for forward price-to-earnings, as Butters pointed out, with a forward P/E of 20.5, though that number is at one of its lowest points of the past 18 months.

Butters pointed out the still elevated P/E ratio is partly because investors expect companies to beat on earnings, as they have historically. During the past five years, actual earnings for the S&P 500 have outpaced expected earnings by 8.4% on average, leading the earnings growth rate to top the expected rate by an average of 7.2% throughout the earnings season. Those numbers have exploded higher in the past five quarters, however, as concerns about the COVID-19 pandemic have failed to show up in corporate earnings results, with outperformance in that period hitting 19.1% on average, according to Butters.

DataTrek Research co-founder Nicholas Colas wrote in a Monday morning research note that companies will have to come closer to the second number than the first to see any gains for stocks in the coming months.

“The companies of the S&P 500 need to beat by an aggregate 10 percentage points this quarter, or we’ve almost certainly seen the highs on U.S. equity markets for the year,” he wrote.

The flood of reports really kicks off this week, with banks and other early reports.

“Investors would do well to view per-share earnings carefully, because banks have been shifting loan loss reserves that they built up in the early days of the COVID pandemic to their bottom line as the economy has improved,” Gelsi wrote. “This practice allows banks to operate within regulatory boundaries around loan loss reserves, while providing a lift to beat their quarterly EPS estimates.”

Earnings from the financial sector are expected to grow more than 17% in the third quarter, while sales are expected to increase at half that rate, 7.5%. The banking subsector specifically is only expected to show sales growth of 1.6%, while profit is expected to rise 22.8%, according to FactSet.

Bank stocks were pretty sedentary in the third quarter, as investor figured out the trick. To find another leg higher, banks are going to have to prove they can still win loan business that is getting siphoned off by some of the next-generation financial-technology players in the market. Look for figures and commentary on that dynamic as the season plays out.

The trucking industry has been on an extreme uptick as the goods coming into ports need to move across continents, but staffing issues have become a larger concern, as has the longevity of the increase.

“Investor sentiment is increasingly of the belief that every record quarter that passes brings the trucking upturn one quarter closer to peaking and the inevitable downturn; yet, that important inflection point keeps getting pushed to the right, with the stronger-for-longer freight backdrop showing no end in sight,” Evercore ISI analysts wrote last week.

Look for earnings from JB Hunt on Friday morning for more insight.

Major U.S. stock indexes see modest gains evaporate by the close Monday, ahead of the release of third-quarter earnings and Wednesday's consumer-price report for September.

Jeremy Owens is MarketWatch’s technology editor and San Francisco bureau chief. You can follow him on Twitter @jowens510.

Read full article at Investor's Business Daily

Dow sheds 250 points, S&P 500 slides to start the week

CNBC 11 October, 2021 - 07:30pm

U.S. stocks fell to start the week Monday as investors weighed surging oil prices, economic worries and major third-quarter earnings results ahead.

The Dow Jones Industrial Average shed 250.19 points, or 0.7%, to close at 34,496.06. The blue chip average was up more than 200 points at its intraday high. The S&P 500 ticked down 0.7% to 4,361.19. The Nasdaq Composite dipped 0.6% to 14,486.20.

Stocks churned for most of the day, but selling increased in the final hour, with the major averages closing the session at their lows.

"What we're seeing right now is the market trying to grapple and come to terms with how to interpret all these inputs," Plexo Capital Managing Partner Lo Toney said on CNBC's "TechCheck." "It's going to take a little bit of time for things to settle out."

The U.S. bond market was closed Monday for Columbus Day.

U.S. oil benchmark WTI crude oil topped $82 a barrel at its session highs before trading around $80 Monday. The surging prices added to looming concerns about inflation.

"High or rapid increase in energy costs have triggered recessions in the past and there is a possibility that history could repeat itself if energy prices continue to rise. Higher energy prices result in lower disposable income for consumers," Bernstein's Neil Beveridge said in a Monday note.

Energy stocks gained for most of the session as oil prices jumped, but also rolled over with the broader market into the close.

Eight out of 11 S&P 500 sectors closed lower in Monday's session, with utilities as the worst performing cohort.

Meanwhile, Goldman on Monday cut its U.S. economic growth forecast. The firm lowered its 2022 growth estimate to 4% from 4.4% and took its 2021 estimate down a tick to 5.6% from 5.7%. The firm cited the expiration of fiscal support from Congress and a slower-than-expected recovery in consumer spending, specifically services.

"For activities like going to a movie theater, many individuals don't anticipate resuming normal spending patterns for at least another 6 months, suggesting a full normalization in economic activity may take some time," Goldman economist Joseph Briggs said in a note.

This week, major banks will kick off their third-quarter earnings reports. JPMorgan posts results Wednesday, with Goldman Sachs, Bank of America, Morgan Stanley, Wells Fargo and Citigroup following later in the week. Delta Airlines and Walgreens Boots Alliance reports are also on deck.

Investors will be looking for insights into supply chain challenges, particularly going into the holiday shopping season.

Analysts estimate an earnings growth rate of 27.6% for the S&P 500 in the third quarter, which would be the third-highest growth rate since 2010.

After a 4.8% loss in September, the S&P 500 is up more than 1% for the month of October and sits about 4% from its record.

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Dow ends nearly 250 points lower as investors prepare for earnings

MarketWatch 11 October, 2021 - 07:30pm

Major U.S. stock indexes see modest gains evaporate by the close Monday, ahead of the release of third-quarter earnings and Wednesday's consumer-price report for September.

William Watts is MarketWatch’s senior markets writer. Based in New York, Watts writes about stocks, bonds, currencies and commodities, including oil. He also writes about global macro issues and trading strategies. Before moving to New York, he reported for MarketWatch from Frankfurt, London and Washington, D.C.

Earnings are headed for an all-time high, if supply-chain and staffing woes don't get in the way

MarketWatch 11 October, 2021 - 05:44pm

There are some concerns about that path, however. Namely, the issues that industries are experiencing as staffing shortages impact the supply chain, which could hurt the ability of retailers to get enough goods to sell to consumers this holiday season.

Expectations are for the second half — which is typically bigger, thanks to back-to-school and holiday shopping — to produce the biggest profit for the year as well. But companies are starting to get nervous about the supply-chain issues that have popped up and could get in the way of continued earnings power.

So far this young earnings season, 21 companies have reported third-quarter earnings, and nearly three-fourths of them — 15 of the 21 — have mentioned negative effects of supply-chain disruptions in their earnings calls, FactSet Senior Earnings Analyst John Butters wrote in a note Friday. Just behind, with 14 of the 21, was staffing issues and labor costs, which are believed to be at the heart of the supply-chain issues.

For investors, the prospect of supply-chain and staffing issues getting in the way of an earnings beat is not a small matter. The S&P 500 is trading well ahead of its five- and 10-year average for forward price-to-earnings, as Butters pointed out, with a forward P/E of 20.5, though that number is at one of its lowest points of the past 18 months.

Butters pointed out the still elevated P/E ratio is partly because investors expect companies to beat on earnings, as they have historically. During the past five years, actual earnings for the S&P 500 have outpaced expected earnings by 8.4% on average, leading the earnings growth rate to top the expected rate by an average of 7.2% throughout the earnings season. Those numbers have exploded higher in the past five quarters, however, as concerns about the COVID-19 pandemic have failed to show up in corporate earnings results, with outperformance in that period hitting 19.1% on average, according to Butters.

DataTrek Research co-founder Nicholas Colas wrote in a Monday morning research note that companies will have to come closer to the second number than the first to see any gains for stocks in the coming months.

“The companies of the S&P 500 need to beat by an aggregate 10 percentage points this quarter, or we’ve almost certainly seen the highs on U.S. equity markets for the year,” he wrote.

The flood of reports really kicks off this week, with banks and other early reports.

“Investors would do well to view per-share earnings carefully, because banks have been shifting loan loss reserves that they built up in the early days of the COVID pandemic to their bottom line as the economy has improved,” Gelsi wrote. “This practice allows banks to operate within regulatory boundaries around loan loss reserves, while providing a lift to beat their quarterly EPS estimates.”

Earnings from the financial sector are expected to grow more than 17% in the third quarter, while sales are expected to increase at half that rate, 7.5%. The banking subsector specifically is only expected to show sales growth of 1.6%, while profit is expected to rise 22.8%, according to FactSet.

Bank stocks were pretty sedentary in the third quarter, as investor figured out the trick. To find another leg higher, banks are going to have to prove they can still win loan business that is getting siphoned off by some of the next-generation financial-technology players in the market. Look for figures and commentary on that dynamic as the season plays out.

The trucking industry has been on an extreme uptick as the goods coming into ports need to move across continents, but staffing issues have become a larger concern, as has the longevity of the increase.

“Investor sentiment is increasingly of the belief that every record quarter that passes brings the trucking upturn one quarter closer to peaking and the inevitable downturn; yet, that important inflection point keeps getting pushed to the right, with the stronger-for-longer freight backdrop showing no end in sight,” Evercore ISI analysts wrote last week.

Look for earnings from JB Hunt on Friday morning for more insight.

The federal holiday comes at a bumpy time for U.S. equities.

Jeremy Owens is MarketWatch’s technology editor and San Francisco bureau chief. You can follow him on Twitter @jowens510.

Stock futures are flat in overnight trading after a losing day

CNBC 11 October, 2021 - 05:02pm

Stock futures were little changed in overnight trading on Monday after Wall Street kicked off the week on a sour note.

Futures on the Dow Jones Industrial Average dipped 20 points. S&P 500 futures and Nasdaq 100 futures were both down by 0.1%.

The market suffered losses to start the week with the blue-chip Dow shedding 250 points. The S&P 500 fell 0.7% Monday with nine of the 11 sectors registering losses, while the tech-heavy Nasdaq Composite dipped 0.6%.

"There are a lot of headwinds out there as we embark on corporate earnings, and traders will be looking for any and all indications of guidance — especially as the threat of slower growth looms large," said Chris Larkin, managing director of trading at E-Trade Financial. "As new data emerges and traders gain some potential insight into growth prospects, it may be wise to prepare for more bumps in the road."

JPMorgan Chase and other big banks are about to kick off the third-quarter earnings season later this week. Earnings growth is expected to grow about 30% year over year this quarter following a 96.3% expansion in the second quarter, according to Refinitiv.

"Expectations for third quarter earnings have been coming down in recent weeks and that should create some room for upside surprises, which is good for overall market sentiment," said Rod von Lipsey, managing director at UBS Private Wealth Management.

Investors will monitor the latest employment data on Tuesday as the Labor Department releases its Job Openings and Labor Turnover Survey. Economists polled by Dow Jones expect 10.9 million job openings in August, unchanged from the total in July.

The stock market went through a bumpy ride in September, with the S&P 500 falling 4.8% for its worst month since March 2020 and breaking a seven-month winning streak.

Wall Street major strategists are seeing muted returns for the rest of 2021 as the average year-end S&P 500 target stands at 4,433, less than 2% from Monday's close, according to the CNBC Market Strategist Survey.

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Data is a real-time snapshot *Data is delayed at least 15 minutes. Global Business and Financial News, Stock Quotes, and Market Data and Analysis.

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