Equities are trading higher today with earnings smashing expectations and retail sales surprising to the upside. Financials are leading, the early winners of this earnings season.
Notably, the Russell 2k index is up more than 1 percent and the Dow is outperforming other large-cap indexes. U.S. Bond yields are higher today as prices fall with equities higher point to a risk-on day for investors.
Oil is marching higher crossing $82 per barrel.
Retail sales posted an unexpected 0.7 percent growth in September versus the forecasted 0.2 percent drop.
Consumers have continued to spend at an increased rate even as supply chain shortages persist and prices rise.
Autos, which has been one of the hardest hits from chip shortages, saw their sales rise 0.5 percent.
Strong consumer spending is likely contributing to 30-year high inflationary levels and as travel and leisure fully ram us, we could see retail spending slow as consumer demand for services grows.
On the earnings front, large banks such as JPMorgan and Goldman Sachs have posted stellar results which likely bodes well for the rest of the market.
However, analysts point out that we could be reaching “peak growth” as base effects wear off.
In the case of JPMorgan, stellar earnings results are only part of the story, wit rising yields, and slower GDP growth also being priced in.
JPMargan’s stock price initially fell after the earnings announcement, meaning its earnings and sales multiples dropped.
A low rate environment has been the justification for high multiples as well as strong economic growth, but with the Fed likely to raise rates in the next few years, those high multiples are likely to fall as borrowing costs increase, in our view.