What you need to know today
Markets in a holding pattern
US stocks struggled to make any meaningful moves on Tuesday as Treasury yields rose – the 2-year yield hit a 17-year high. Europe’s Stoxx 600 index was down 0.1% amid mixed economic news. In the UK, average earnings excluding bonuses rose 7.8% year-on-year, the first time the pace has slowed since January. In Germany, economic sentiment improved more than expected in October.
Unstoppable US consumer
US retail sales rose 0.7% month-on-month in September, far more than the 0.3% Dow Jones estimate, according to a Commerce Department advance report. Sales excluding autos rose 0.6%, three times the 0.2% expected. “The US consumer can’t stop spending,” said David Russell, global head of market strategy at TradeStation.
Profits slump at Goldman
Goldman Sachs posted better-than-expected third-quarter profit and revenue. However, year-on-year profits fell 33% to $2.058 billion and revenues fell 1% to $11.82 billion. A breakdown of the bank’s revenue performance: Bond trading revenue fell 6%, equity trading revenue rose 8% and investment banking revenue rose 1%. Investors weren’t impressed, sending Goldman shares down 1.6%.
Earnings beat at Bank of America
Bank of America beat Wall Street estimates for third-quarter profit and revenue. Profit jumped 10% from a year ago to $7.8 billion and revenue rose 2.9% to $25.32 billion. Rising interest rates and loan growth boosted BofA’s interest income by 4% to $14.4 billion. Investors cheered the results and rewarded the bank with a 2.33% rise in its shares.
[PRO] Buy gold, underweight equities
All three major indexes are in the green for October. But JPMorgan’s top strategist isn’t convinced. Here is his advice: Buy gold. And don’t buy too many stocks. High bond yields, interest rates and the Israel-Hamas war remain risks for financial markets, he says.
The bottom line
Markets wobbled on Tuesday as investors digested US retail sales data for September and third-quarter bank earnings.
Consumers spent much more than economists expected last month, which “puts us on track for a strong GDP number later this month,” said David Russell of TradeStation, an online trading and brokerage firm. Following the retail report, Goldman Sachs raised its third-quarter GDP forecast by 0.3 percentage points to 4%. That’s the highest quarterly growth since the last quarter of 2021.
The narrative of a “soft landing” scenario, in which the US economy tames inflation without falling into recession, was reinforced by yesterday’s economic data. The “economy is on track for a soft landing following healthy consumer activity, cooling inflation and solid growth,” wrote UBS’s Chief Investment Office.
A growing economy, in turn, is good news for corporate earnings and equities. In the same note, UBS said “the earnings recession is over”, meaning that earnings per share for S&P 500 companies should start to grow from the third quarter.
But it’s not all roses in the retail report. The hot spending data will come “to the Fed’s dismay”, said Gina Bolvin, president of Bolvin Wealth Management, because the central bank “will not like that higher interest rates are not deterring consumers from spending”.
Russell agreed, saying “it also gives the Fed no reason to ease policy, which is pushing the 10-year Treasury yield towards 5%”.
Indeed, Treasury yields jumped to multi-year highs yesterday, pressuring equities despite a good start to earnings season. (Of the companies that have reported so far, 83% have beaten earnings estimates).
The major indices made tentative moves in both directions. The S&P 500 slipped a tiny 0.01%, the Nasdaq Composite lost 0.25%, while the Dow Jones Industrial Average eked out a tiny gain of 0.04%.
If bond yields continue to rise, it’s possible that earnings reports won’t have much of an impact on the broader stock market. As Chris Zaccarelli, chief investment officer of the Independent Advisor Alliance, put it: “It’s more the bond market that is driving the stock market at this point.
