(Oct 18) Stocks fell Monday to give back some gains after the S&P 500's best week since July, with investors' concerns over elevated inflation offsetting hopes that more companies will follow the lead of the big banks last week and post strong quarterly earnings results.
The Dow, S&P 500 and Nasdaq each moved to the downside. The moves tracked a drop in overseas equities after Chinareported its slowest GDP growth rate since last year for the third quarter, as energy shortages and property-sector turmoil dragged down economic activity in the world's second-largest economy. West Texas intermediate crude oil futures (CL=F) jumped above $83 per barrel to hover at their highest level since 2014, and the benchmark 10-year Treasury yield broke back above 1.6%.
This week, investors are looking ahead to a packed slate of corporate earnings results, which will help offer more insights into how companies across various industries have navigated inflationary trends, widespread labor scarcities and lingering virus-related disruptions. Remarks from some executives have further confirmed the weight of these issues. Fastenal (FAST) CEO Daniel Florness said during last week's earnings call that "product and shipping cost inflation is not just high, it's brutally high."
But an otherwise strong start to earnings season last week helped fuel optimism that corporate profits held up more strongly than anticipated across the board, even in the face of a myriad supply-related challenges. Big banks from Morgan Stanley (MS) to Bank of America (BAC) and Goldman Sachs (GS) handily topped estimates in their third quarter results last week, and many of these companies' executive offered upbeat assessments of the state of the U.S. consumer, or the demand engine of the U.S. economy. These remarks had helped affirm trends seen in recent economic data, with U.S. retail sales unexpectedly posting a monthly gain of 0.9% in September, government data last week showed.
"We started off this week really strong. The banks have done great ... That started to relieve a little bit of people's concerns, especially when you had the CEOs of the bank saying the consumer looks strong," Victoria Fernandez, Crossmark Global Investments chief market strategist,told Yahoo Finance Live on Friday."And that, I think, is going to be the key for the market going forward. If the consumer is there and they're willing to spend — which we've seen in the month of September [when] retail sales started to come back a little bit — then I think that gives a little more optimism to the market that as we continue to reopen, as earnings are strong, the consumer will be there, and the equity markets will continue to trend higher."
As of Friday, the expected earnings growth rate for the S&P 500 was 30%,according to FactSet.That figure — based on both actual earnings from companies that have reported so far and expectations for future results — represented an increase from the prior week, when the anticipated earnings growth rate for the third quarter stood at about 27.6%.
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