Wrapping up earnings
At this point, about 95% of S&P 500 companies have reported their financial and operating results for the third quarter. Driven by strong demand, 81% of these companies have reported results that have exceeded Wall Street’s expectations, on track to grow earnings by over 42% compared to this time last year. This week’s headlines were made by our friendly neighborhood retailers like Walmart, Target, Macy’s, Home Depot and others – all indicating consumers are healthy and ready to shop until they drop. Despite revenues (driven by consumer demand) being really strong, there’s been a big theme during this earnings season – higher costs impacting the bottom line. One of the biggest drivers of higher costs is that our supply chain is broken. In fact, the highest number of companies (about 72% of companies that have reported so far) have talked about supply chain issues during the conference calls to discuss their quarterly results. Fun fact – this is the highest number in over a decade!
Moral of the story: The strong retailer earnings and, more importantly, outlook point to strong consumer spending through the end of the year. Consumer spending makes up about two-thirds of US economic growth, so obviously a great sign for the overall strength of the economy. We’re starting to see the very first signs of the supply chain issues resolving, but this is likely going to be an issue for companies throughout next year.
Did you know, COVID is still around?
In an unfortunate turn of events, the markets remembered this week that COVID is still around as case counts are back on the rise in the US but also across the world. Austria is back in total lockdown, Germany is seeing the highest level of cases they’ve ever seen, and it seems like the delta variant has made its way to the northeast. Though this news weighed on stocks to end the week, most major indices still ended the week higher driven by continued strong earnings report from companies and a rotation between the “stay at home” stocks (i.e. tech that helps us work from home was up) versus “reopening” stocks (i.e. airline and travel stocks were down).
Moral of the story: New waves of COVID cases haven’t really impacted stocks in a massive way recently because we’ve figured out how to live with this. Between vaccination rates climbing, boosters being rolled out, and therapeutics being approved for treatments, it’s probably safe to say significantly fewer people are worried about dying from COVID today than a year ago. It’s expected that cases get worse during the holidays as people gather, but it’s probably short-lived and less lethal wave than what we saw last winter.
We love shopping
Retail sales came in well above expectations for October, rising 1.7% during the month and 16.3% in the last year. Unsurprisingly, online sales posted the strongest gain of 4% for the month. Unfortunately for most of us, gas prices have also been on the rise recently (watching gas prices rise this much has been about as sad as Adele’s new album), causing sales at gas stations to increase almost 47% on an annual basis.
Moral of the story: Part of the rise in retail sales is driven by inflation. But the bigger takeaway is that despite the higher prices, consumers are *still* spending money. Part of that is driven by the fact that overall savings during the pandemic skyrocketed, giving consumers (overall) a pretty large stash of cash they’re ready to spend.
I’ll be taking a little break to give thanks next weekend but will be back in your inboxes in December!