Wall Street equities hover at all-time highs on back of strong earnings
Wall Street stock markets were on track to hit the latest in a series of all-time highs on Monday, as stock market sentiment continued to be buoyed by strong corporate earnings and key central banks affirming easy monetary polices.
The benchmark S&P 500 share index was flat in early afternoon New York trading after closing out its best week since June on Friday, while the technology-focused Nasdaq Composite built on its latest record, adding 0.1 per cent.
By Friday, the S&P 500 had closed at record levels for seven consecutive trading sessions. It is now 25 per cent higher this year and has more than doubled since the coronavirus-induced market rout of March 2020.
Last week, monthly US jobs market data topped analysts’ forecasts, Pfizer reported positive late-stage trials for its antiviral Covid-19 pill and the Federal Reserve pledged “patience” towards interest rate rises.
Scotching concerns that high rates of global inflation would dent profit margins, S&P 500 companies have beaten analysts’ quarterly earnings expectations by 10 per cent, on aggregate, according to FactSet.
Total quarterly earnings from companies listed on the Stoxx Europe 600 share index have beaten forecasts by 7 per cent so far, according to Goldman Sachs. On Monday, the Stoxx closed roughly flat.
But investors are now turning their attention to forecasts of corporate profit growth moderating next year, as a strong earnings recovery from the coronavirus shocks of 2020 fades into the background.
“We’re probably not going to see the same types of returns in 2022,” said Zehrid Osmani, manager of Martin Currie’s global portfolio trust. “Next year is clearly a much lower forecast year for earnings as this year has been one of recovery,” he said, after companies shook off the economic shocks of 2020. “Also, monetary policy will shift from being accommodative to normalising.”
Government bonds rallied last week as the Fed made a well-telegraphed move to reduce its $120bn of monthly bond purchases that have lowered borrowing costs since March 2020, while chair Jay Powell said “we don’t think it’s time yet” to also raise borrowing costs. The Bank of England also held interest rates at 0.1 per cent after signalling it was ready to raise them.
A note of caution crept back into US Treasury markets on Monday after Fed vice-chair Richard Clarida said expected improvements in the labour market could warrant rate rises by the end of next year. Data on Wednesday are also expected to reveal that US headline consumer price inflation rose to its highest level since 1990 last month.
“The risks to the outlook for inflation are to the upside,” Clarida said in remarks at a Brookings Institution event.
The yield on the 10-year US Treasury note, a benchmark for government borrowing costs, added 0.03 percentage points to 1.486 per cent as the price of the debt softened. The five-year Treasury yield rose 0.04 percentage points to 1.106 per cent.
Other market moves
In Asia, Hong Kong’s Hang Seng index fell 0.4 per cent and Tokyo’s Nikkei 225 closed 0.4 per cent lower, as traders turned cautious at the start of the sixth plenum of China’s ruling party, which is expected to set the stage for President Xi Jinping securing an unprecedented third term.
Brent crude, the oil benchmark, added 0.9 per cent to $83.43 a barrel as sentiment in commodities markets was boosted by US president Joe Biden’s $1.2tn infrastructure spending bill being approved by the House of Representatives late on Friday.
European natural gas contracts for December delivery rose about 6 per cent to €78 per megawatt hour, as hopes faded of Russia increasing supplies to resolve concerns about shortages.
The dollar index, which measures the US currency against six others, declined 0.3 per cent.