Bobbing for Earnings!

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From:

Greg Womack -- Oklahoma Financial Adviser

Oklahoma City, OK

Wednesday, November 2, 2022

Renew. Regenerate. Refocus.

October 31, 2022

The Markets

Some companies are doing better than others – a lot better.

It's earnings season; the time when companies share how well they performed during the previous quarter. Earnings reports are important because they provide information about a company's financial health. Shareholders pay particular attention to earnings, which are company profits after expenses have been subtracted.

At the end of last week, slightly more than half of the companies in the Standard & Poor's (S&P) 500 Index had reported results for the third quarter of 2022. The blended earnings growth rate^* for the S&P 500 was 4.1 percent, year-over-year, according to I/B/E/S data from Refinitiv.

The worst performing sector was communication services, which includes some big technology names. Earnings for the sector were down 20.9 percent for the third quarter.At the other end of the spectrum was the energy sector with year-over-year earnings growth of about 136 percent. The sector was led by big oil companies, some of which posted record profits, reported Sabrina Valle and Ron Bousso of Reuters.

The weaker performance of technology companies helps explain why the Dow Jones Industrial Average (Dow), an index that includes some of the nation's large blue-chip companies, has outperformed the Nasdaq Composite Index, which reflects the performance of the technology sector, recently, reported Ben Levisohn of Barron's.

"And what a four weeks it has been. The Dow has jumped 14.4% in October and is on pace for its best month since January 1976, when the blue-chip benchmark surged 14.41%. The other indexes have fallen short of those gains: The Russell 2000…has climbed 11%, the S&P 500 has gained 8.8%, and the Nasdaq Composite has risen a paltry 5%."

Investors were also encouraged by last week's economic data. The Personal Consumption Expenditure Price Index (PCE), which is the Federal Reserve's favored measure of inflation, "…increased 4.2 percent [in the third quarter], compared with an increase of 7.3 percent [in the second quarter]. Excluding food and energy prices, the PCE price index increased 4.5 percent [in the third quarter], compared with an increase of 4.7 percent [in the second quarter]."

Investors hope evidence that price increases are not accelerating will cause the Fed to reevaluate the pace of rate hikes, reported Jacob Sonenshine and Jack Denton of Barron's.

While recent stock market gains have been a respite for investors, corporate earnings are not as strong as the top line numbers suggest. When the energy sector is excluded, the blended corporate earnings rate was down 3.5 percent for the third quarter.

Last week, major U.S. stock indices rose, and yields for many maturities of U.S. Treasury moved lower.

*The blended rate combines actual earnings/profits for companies that have reported with consensus estimates for companies that haven't yet reported.

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend)

and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance; MarketWatch; djindexes.com; U.S. Treasury; London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

Sources:

https://www.investopedia.com/ask/answers/070615/what-difference-between-earnings-and-profit.asp

https://lipperalpha.refinitiv.com/wp-content/uploads/2022/10/TRPR_82201_20221028.pdf

https://www.reuters.com/business/energy/wrapup-global-oil-giants-rake-massive-profits-third-quarter-2022-10-28/

https://www.barrons.com/articles/stock-market-dow-nasdaq-dot-com-bubble-51667004324?refsec=the-trader&mod=topics_the-trader (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2022/10-31-22_Barrons_Shades%20of%20the%20Dot%20Com%20Bust_4.pdf)

https://www.bea.gov/sites/default/files/2022-10/gdp3q22_adv.pdf [See Table 4]

https://www.barrons.com/livecoverage/stock-market-today-102822/card/stocks-drop-after-brutal-week-for-big-tech-earnings-BpI0odeClhgz6Ovfw41T (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2022/10-31_22_Barrons_Stocks%20Rallied%20After%20a%20Brutal%20Week%20for%20Tech%20Earnings_6.pdf)

https://www.bloomberg.com/markets/stocks

https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value_month=202210

https://corporatefinanceinstitute.com/resources/knowledge/economics/what-is-economics/