EARNINGS: This is a pivotal earnings season. With US stocks to end their earnings recession and profits taking over from rerated valuations as the markets driver. This help is needed more than ever. With the tall wall-of-worry from the middle east and oil to inflation and bond yields. Tech is the market Godzilla, as the biggest and best-performing sector with the strongest growth as the ‘magnificent seven’ lead the earnings recovery. With their Q3 profits seen up over 30% vs -2% for the remaining ‘S&P 493’. Justifying their premium valuation and lifting the whole market. Whilst banks are the proverbial King Kong. These key real economy intermediaries face deposit outflow and slowdown headwinds, with lagging stock prices and markets near lowest valuations.
TECH: The Magnificent 7 are set to see double digit sales growth and over 30% profits growth vs 2% for S&P 500. This growth and their 20% net margins justify the 50% valuation premium. TSLA reported yesterday and is forecast to be the only one to grow earnings less than the S&P 500. Investors will focus on AI growth at MSFT (Oct. 24th) and especially late reporting NVIDIA (Nov. 21). The ads recovery at GOOG (24th) and META (25th). And Christmas and new i-Phone 15 outlook at AMZN (26th) and Apple (Nov. 2nd). Many are also in government’s anti-monopoly crosshairs and ramping up dividends and buybacks. Investors will be looking for any update.
BANKS: It’s the third largest US sector and the key real economy intermediary. Q3 results have been mixed. Deposit outflows have continued but slowed. Credit card spending flatlined with delinquencies creeping up, and big ticket and rate sensitive mortgage and auto loan volumes sinking. Investment banking revenues have shown signs of life. Both big and regional bank stocks plunged over 20% this year, unable to recover from the March ‘scare’. They are some of the cheapest in the market, with worries high on slowing economies and high rate frailties.
All data, figures & charts are valid as of 19/10/2023.