Earnings Boost Stock Market

Stocks opened higher this morning, following on several days of modest gains. At the moment, the Dow is up 91 points and the S&P 500 is up .28%. Earnings surprises are the main reason for resumption of the market rally after a tough September. The VIX fear gauge sagged to 16 and gold is down about .3% since Thursday. The bond market is trading broadly higher today, pushing yields lower. Yields shot higher through most of the fall, but have reversed course over the last 10 days or so. Lower yields tend to relieve some pressure on stock valuations, and suggest benign expectations for long-run inflation. The Federal Reserve will wrap up its monthly policy meeting tomorrow, so traders may try to game the announcement.

Bloomberg News says the bond market is “now pricing in an almost 70% chance that the Fed will make its first quarter-point [interest rate] hike in June.” Don’t miss that—tapering of QE to zero over the next 6 months is already a foregone conclusion and traders are moving on to pricing in rate hikes. Capital markets are, after all, anticipatory and traders are now building in expectations for government stimulus, inflation & economic growth 6-8 months down the road.

About 70 of the S&P 500 companies have reported third quarter results, and Bloomberg notes “the fact that profit margins have held up quite well…despite soaring commodity prices and supply-chain disruptions.” On a year-over-year basis, aggregate revenue (sales) growth is tracking to nearly 12% and earnings-per-share are up more than 30%. In coming quarterly those growth rates are expected to moderate to more sustainable levels. Next year, corporate earnings are seen growing about 8%.

Pfizer (PFE) reported surprisingly good sales & profits, and the stock is up more than 4% in early trading. Management raised 2021 sales guidance for its Covid-19 vaccine to $36bil, roughly 7% higher than previously thought. In addition, vaccine sales are now projected at $29bil next year. The company has rapidly expanded its vaccine manufacturing program around the world, and more than 75% of vaccine sales this year have been overseas. Regulatory approval of a booster shot as well as the vaccine for children didn’t hurt either. The company is now working on an experimental Covid antiviral drug, as well as a fourth vaccine booster. After Covid Delta began to recede investors threw the stock in the garbage, perhaps too early.