The State Of The Stock Market 7 Days Before Elections

Summary

  • Earnings are coming in better than expected, with the S&P 500 companies reversing an over year-long decline during Q3 itself.
  • The final hustle begins on the election front, and projections thus far appear to be in sync with market expectations. But watch out for Halloween surprises, aka the FBI.
  • A shrinkage of stock market risk appetite is being witnessed as the healthcare and small-cap stocks suffer disproportionately.
  • The market remains adrift till the US general election results as new capital shifts to the sidelines and gets ready to react to the White House and Congressional results.

Stock Portfolio - Graycell Advisors

The curtain is dropping on an eventful October as the US market begins to ready itself for the US election outcomes. Earnings season should begin ceding center stage to election season as we enter this week.

Earnings Have Kept Up

Since earnings are pivotal to maintaining current valuation levels, it will be helpful to look at where the scorecard stands.

As of end of last week 290 companies (58%) of the S&P 500 had reported earnings for calendar third quarter. Of these, about 215 companies, or 74%, have reported earnings that were above the consensus estimate, as per FactSet. In addition, 58% reported sales growth above mean estimate.

As pointed out in detail in our last article, "It's October, And The Market Has Not Given Up Yet," the S&P 500 is expected to have its 6th consecutive quarter of negative earnings growth. However, the decline is expected to be a marginal one of -0.3%. But based on the early trends from earnings reported thus far, it appears that S&P 500 may show earnings growth of +2% for the calendar third quarter, up significantly from an anticipated decline at the start of October, according to Thomson Reuters IBES estimates.

In an interesting insight, the current rate of 74% of the companies outperforming the earnings consensus is above the 70% average 1-year rate and also above the 67% average 5-year rate. Forward guidance is being maintained for the calendar fourth quarter, with 233 of the S&P 500 companies keeping guidance unchanged, while 36 companies have issued negative earnings guidance and 21 have issued positive guidance, according to FactSet.

Technology earnings are expected to provide a strong assist to both S&P 500 and Nasdaq, and that has been the case so far. In fact, the biggest drag on the Information Technology sector, represented within S&P 500, was the

This article was written by

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