Investor interest is intensifying around the third quarter of the US corporate results season, with nearly 80% of reports exceeding analyst predictions. This early positive trend has spurred the US market to hit another record high, marking its sixth straight weekly increase.
As the US Presidential election on 5 November approaches, the coming fortnight is set to bring a wave of company reports, which, if similarly upbeat, could overshadow current market concerns. These issues range from the ongoing Ukraine-Russia conflict, rising tensions in the Middle East as Israel prepares for potential actions against Iran, and speculation about how quickly the Federal Reserve will lower interest rates from the current 5% down to the projected 3.5% by the end of next year or perhaps sometime in 2026.
On Monday, China’s Central Bank reduced both general and property lending rates by 0.25%, meeting market expectations but prompting further calls for more substantial measures in the near future. Meanwhile, in the US, financial markets are pricing in a 92% and 86% chance of a 0.25% cut in interest rates at the Federal Open Market Committee meetings set for November and December, respectively.
Across the Atlantic, the UK market is also anticipating a similar rate cut on 7 November, following last week’s European Central Bank rate reduction. The Bank of Canada, meeting later today, is expected to announce an even more significant rate cut, though Canadian economic growth at an annualised rate of 2.1% in the second quarter has drawn caution from Governor Tiff Macklem, who warns of risks to jobs and economic stability, partly due to the impact of lower oil prices.
The recent strength of the US market has been bolstered by polling in the crucial seven swing states that will likely determine the outcome of the Presidential election. The momentum has shifted slightly towards Trump, who is once again favoured to win. This has strengthened the US dollar, as his policies on borrowing and spending could potentially keep both inflation and interest rates elevated. Additionally, Bitcoin has surged, driven by Trump’s apparent enthusiasm for cryptocurrency.
While Democrats aren’t yet panicking, there is some reassurance in Taylor Swift’s fan base rallying to support Kamala Harris. Yet, it remains to be seen if younger voters will turn out at the polls in sufficient numbers.
Positive economic indicators are also fuelling investor confidence, with growth data exceeding forecasts, steady employment figures, and indicators pointing towards moderate economic growth at a time when inflation is nearing target levels. Retail sales have outpaced expectations, and the stability in employment conditions has reinforced the optimism.
Focusing on corporate earnings, Netflix shares jumped by 11% after posting operating income 7% above estimates. The company’s announcements about price increases, strong customer engagement, and positive advertising trends point towards improving profit margins. In a promising sign for the upcoming Christmas season, new subscriber numbers reached 5.1 million, a full million above projections.
In another sector, Boeing saw relief as it offered its striking workers a 35% pay increase spread over four years, although unresolved pension issues remain a sticking point. French luxury giant LVMH, however, faced setbacks, with shares down nearly 20% this year, as weak sales in Asia continued to weigh on profits, leaving shareholders disgruntled.
Looking ahead, investors will keep a close eye on the upcoming US Purchasing Managers’ indices for Manufacturing and Services on Thursday to gauge ongoing economic resilience. Friday’s Durable Goods Orders and the Michigan Consumer Sentiment index, which has been trending upwards recently, are also likely to provide valuable insights into consumer confidence and spending trends.
As the US corporate earnings season progresses, investors are watching for indications that the momentum can continue to push markets higher. While external risks and uncertainties remain, positive economic data and robust corporate results have boosted optimism in the market.
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