Spite of strong corporate earnings, the S&P 500, Dow, and Nasdaq100 decline.

Oct 21, 2022
VOT Research Desk

Market Insights, Considerations & Analytics

Despite robust corporate earnings in the third quarter, TheS&P 500, Dow, and Nasdaq100 tremble.

Amid hawkish comments from Fed officials, US Treasury yields risen to the level not since 2007. Apple, Alphabet, and Amazon will report results the following week.

On Thursday, the major U.S. market indices shook as investors evaluated encouraging company profits against indications that the U.S. economy is fast weakening amid tightening financial conditions. Despite earlier worries that inflation and rising interest rates would have a negative effect on financial performance, the third quarter reporting period is off to a solid start. Most businesses have so far reported beating estimates, with banks, airlines, and some IT companies putting in strong showings.

Although results and forward projections have generally been positive, obstacles still exist. U.S. Treasury rates have been moving up on this front recently due to the FOMC’s aggressive re-pricing of policy. In fact, after Fed members stated that interest rates will rise “far over” 4% this year due to persistently strong core inflation and tight labor markets, the 10-year note increased to 4.23% Thursday afternoon, its highest level since 2008.

At the closing, the Dow and the S&P 500 both experienced losses of 0.30 and 0.80 percent, respectively, but a number of significant corporations defied the trend. For instance, following the release of exceptional third quarter earnings, AT&T and IBM put on a strong rise. IBM finished with a gain of 4.72%, while AT&T gained 7.72%.

The Nasdaq’s tech-heavy index suffered yesterday’s announcement that Tesla will not meet its goal for vehicle deliveries this year. Tesla lost 6.64% at the closing, while the index dropped 0.51%.

TECHNICAL PERSPECTIVE

Technically speaking, the S&P 500 on Thursday opened with a gap to the negative but gained ground at the open in response to developments elsewhere. A modest decline in rates following British Prime Minister Truss’ departure gave the market some boost.

Despite these intra-session changes, the overall situation for stocks remains negative as increased rates should make risky assets less appealing. On the daily chart, the 3,805 area—which is bounded by the October high and the 38.2% Fibonacci retracement of the 2022 sell-off—appear as early resistance. Support on the downward might be located between 3590 and 3600; a close below these levels could perhaps give the bears more power.

Thinking forwards, 165 of the 500 S&P 500 businesses are anticipated to report earnings the following week, according to FactSet. This list includes Amazon, Apple, and Alphabet. A current evaluation of the state of the U.S. economy will also be provided by the flash PMI, consumer confidence, advanced GDP price index, durable goods orders, and core PCE.

Technical Analytics – Moving Averages (daily)