Wall Street’s Six-Week Winning Streak: Can Earnings Keep the Momentum Going?
Wall Street has just concluded its sixth consecutive week of gains, a remarkable run fueled largely by strong corporate earnings. Both the S&P 500 and the Dow closed Friday at record highs, marking their best weeks of the year. The tech-heavy Nasdaq also saw significant gains, closing within 1% of its July all-time highs, largely driven by Netflix’s impressive 11% post-earnings surge. This rally, however, has pushed the market close to overbought territory, according to the S&P Short Range Oscillator, raising questions about the sustainability of this momentum as earnings season intensifies. The coming week will be crucial in determining whether this positive trend can be maintained amidst potential market corrections.
Key Takeaways:
- Six-Week Winning Streak: Wall Street just closed its sixth consecutive week of gains, a sign of market strength and investor optimism.
- Record Highs: The S&P 500 and the Dow hit new all-time highs, fueled by positive corporate earnings reports.
- Nasdaq’s Surge: Netflix’s strong post-earnings performance propelled the Nasdaq, bringing it close to its July record.
- Overbought Market: The market is nearing overbought territory, raising concerns about a potential correction.
- Earnings Season: The upcoming week is pivotal, with over 100 S&P 500 companies reporting earnings, significantly impacting market performance.
Earnings Power the Rally, but Is it Sustainable?
The recent market surge is undeniably linked to strong corporate earnings. Companies across various sectors have exceeded expectations, boosting investor confidence. Jim Cramer, a prominent financial commentator, described the current investor sentiment as a "nirvana moment," citing factors such as declining oil prices and resilient retail sales as indicators of moderating inflation and continued economic growth. However, he also cautioned about the risks of an overbought market, suggesting a potential need to reduce stock exposure. This highlights the inherent tension in the current market – optimism fueled by strong earnings versus the potential for a correction due to overvaluation.
Strong Performers and Sectoral Trends
The financial sector was a standout performer last week, with Morgan Stanley’s better-than-expected results driving its stock to a record high, representing a 9.5% increase for the week. Abbott Laboratories, another strong performer, also delivered a "beat and raise," contributing to its nearly 3% weekly gain. In contrast, the energy sector lagged, with West Texas Intermediate (WTI) crude oil prices plummeting 8.4% for the week, its worst performance in over a year, primarily due to concerns over slowing Chinese economic growth and record US oil production. This sectoral divergence underscores the complexity of the current market and the importance of diversifying investments.
Focus on Key Earnings Reports
The coming week promises a deluge of earnings reports, with over 100 S&P 500 companies scheduled to release their results. Several key companies are under close scrutiny, particularly those within the CNBC Investing Club’s portfolio. Danaher (DHR), Honeywell (HON), and Dover (DOV) represent significant investments to be scrutinized for how third-quarter results will impact investor sentiment.
Danaher’s Bioprocessing Headwinds
Analysts’ consensus estimates for Danaher’s third-quarter sales and earnings per share (EPS) are $5.59 billion and $1.57, respectively. However, positive updates from German bioprocessing peer Sartorius, suggesting an impending end to inventory destocking and a 9% sequential increase in orders, have raised expectations for Danaher, creating a "beat or miss" scenario. The management’s commentary on the bioprocessing market is expected to significantly influence the stock price reaction following the earnings release.
Honeywell’s Streamlining and Demand Outlook
Honeywell’s upcoming earnings announcement is significant, especially considering the recent news regarding the spin-off of its advanced materials division. Investor focus will be on management’s assessment of demand for the short-cycle, higher-margin segments of its business, regarded as key swing factors impacting profitability. LSEG estimates currently place Honeywell’s third-quarter sales and EPS at $9.9 billion and $2.50, respectively.
Dover’s Organic Bookings and Portfolio Evolution
For Dover, the key metric to watch is organic bookings. Recent quarters have seen positive order momentum fueled by growth in several key areas such as data center components, biopharma products, and refrigeration systems. Management is also expected to provide updates on its ongoing portfolio evolution, including details about its asset divestitures and new acquisitions in the clean energy sector. Current LSEG estimates for Dover’s third-quarter sales and EPS are $2.09 billion and $2.33.
Economic Indicators: A Focus on Housing
While the week’s economic data will be relatively light, the housing market will be under the microscope. This market is attracting significant attention this week as economic indicators will be released from existing and new home sales on Wednesday and Thursday showing investor and Federal Reserve interest because it is a major cost for most Americans and serves as a persistent source of inflation. September’s existing home sales data (Wednesday) and new home sales data (Thursday) will offer valuable insights into the resilience of the housing sector and its impact on broader inflation. The state of the housing market remains intertwined with bond yields and mortgage rates. The market generally anticipates the Federal Reserve (Fed) to continue its easing monetary policy with potential interest rate cuts in the coming months, resulting in potentially decreased mortgage rates that will make home purchases more affordable. Ultimately, this dynamic will directly impact firms dealing with home goods, with the investment thesis supporting companies such as Stanley Black & Decker, Home Depot, and Best Buy.
The Week Ahead: A Busy Schedule
The coming week will be packed with earnings reports, starting from Monday with after-bell releases from SAP, Nucor, and Logitech. The heavy schedule continues throughout the week, with numerous major companies including Verizon, General Motors, 3M, Boeing, Coca-Cola, and Tesla releasing their reports. This dense calendar shows how corporate earnings are expected to shape the overall market sentiment in the week to come.
In conclusion, while Wall Street enjoys a remarkable streak of six consecutive weeks of gains, the market’s position near overbought territory and the focus on upcoming earnings reports introduces substantial uncertainty. Market performance during this earnings-heavy week will heavily influence whether this positive trend will continue or if a correction is on the horizon. Investors must remain alert to these factors when designing their investment strategies in this volatile (but potentially lucrative) market.
