Some Good News, Some Bad

Major stock market indexes opened higher this morning, looking for direction in a market characterized by crosscurrents and contradicting signals. Currently, the Dow is up 320 points and the S&P 500 is up .9%. The VIX Index has quietly fallen back to 30 from 33 over the past couple of weeks. The dollar is flat, giving stocks some breathing room. And while commodities are mostly lower today, bonds are rallying across the board as yields tick lower.

Earnings season has been somewhat encouraging in that “Recession Signals Are Still Hard to Find,” according to Bloomberg News. It’s not that Corporate America is having an easy time of it, but results have been better than feared. With just under 100 of the S&P 500 companies having reported, aggregate sales growth is tracking to about 7%, whereas earnings growth is down about 2% from a year ago. This is to be expected; resilient demand has propped up revenue, but high cost inflation has impacted profits. And yet, profits are generally coming in better than expected. Have Wall Street analysts become too bearish, or are they just too early in predicting a sharp slowdown? Fear of recession is palpable, but thus far we’ve seen few concrete signs of its onset.

American Express (AXP) reported strong third quarter results—24% revenue growth; 9% profit growth—and the stock is up 1% this morning. The company said travel spending remains strong among both consumers and businesses. Amex added a record number of platinum customers during the quarter.

Interpublic (IPG) posted 17% revenue growth and 2% earnings growth for the quarter. More importantly, management raised its full-year organic revenue forecast to 7% from 6.5%. In other words, global demand for advertising is holding up despite slower economic growth. Management, however, noted an increasing number of corporate clients are working on contingency plans in case of recession. This is a “function of the current uncertainty.”

According to investment research firm S&P, US business activity is now contracting. Surveys of both manufacturing and service businesses conducted earlier this month suggest slowing demand, deteriorating new orders and less hiring activity. The good news, however, is that “weakening demand is helping to moderate the overall rate of inflation.” Investors will be looking to similar surveys from the Institute of Supply Management (ISM) due out on November 1st for corroboration.

Chinese stocks are selling off again today in response to some old fashioned communist power consolidation by Premier Xi Jinping. He used the party congress to set himself up as dictator for life. He publicly and forcibly removed his predecessor from the session, who will presumably be reprogrammed or disposed of. He packed the politburo standing committee with his loyalists. Finally, he has done away with term limits. In response, the yuan weakened against foreign currencies, and the Shanghai Composite Index is down 2% today. This seems like the final nail in the coffin for the few investors who still refuse to believe China is uninvestable.