Volatile with a capital ‘V’ spells out the past week on the stock market. The rally attempt initiated by a two-day, midweek advance survived, setting the stage for a possible follow-through day in the coming week. It also underscored some clear levels of resistance, as analysts ratchet down expectations for the now-imminent third-quarter reporting season. Reports are due from JPMorgan Chase (JPM), Wells Fargo (WFC), United Health Group (UNH) and Delta Air Lines (DAL), to name a few. Inflation data and retail sales numbers have the potential to further stir the market.
Stocks To Watch: Tops Stocks Need Market Rally
As the stock market struggles to break its downtrend, a number of leading stocks have been flirting with or clearing buy points or early entries. Arista Networks (ANET), Cardinal Health (CAH), Shockwave Medical (SWAV), World Wrestling Entertainment (WWE) and Eli Lilly (LLY) all have strong relative strength lines, reflecting their market outperformance. But they all need the market’s so-far brief rally attempt not to stall out. Arista Networks and Shockwave had been testing trendlines, before sharp pullbacks on Friday. WWE is above an early entry and 3% below a traditional buy point in a seven-week cup base. Eli Lilly is dancing around a buy point, Cardinal is finding support, both in flat bases.
Econ Calendar: Up Next — PPI, CPI And Retail Sales
After Friday’s solid jobs report, a 75-basis-point rate hike on Nov. 2 is almost certain, with the latest odds above 80%. But Thursday’s consumer price index, out at 8:30 a.m. ET, could influence the Fed’s next move, at the Dec. 13-14 meeting. Wall Street economists expect the CPI inflation rate to ease to 8.1% in September, from 8.3% the prior month. The producer price index read on wholesale inflation, which has trended down from double digits to 8.7% in August, is out Wednesday at 8:30 a.m. Friday’s retail sales report, out at 8:30 a.m., is expected to show a modest 0.2% rise as consumers battle high prices.
Stock Market Perspective: Hang On Sloopy
The week’s two-day rebound sent the Dow industrials, Nasdaq composite and S&P 500 to a brief test of short-term resistance at their 21-day moving averages. The market’s first advance in four weeks was also on track toward its best week since June, but that unraveled after Friday’s payrolls report. Other averages, including the S&P Midcap 400, S&P Smallcap 600 and Russell 2000 sent more positive signals — all technically staged what could be considered follow-through days during the week. But rallies based solely on minor indexes rarely succeed. A move back above 21-day support by any or all of the major indexes, especially decisive moves that would also signal a follow-through, could potentially set the stock market back on more constructive footing.
Q3 Financials: JPMorgan, Wells Fargo, Citigroup
Major banks kick off their third quarter earnings on Friday, with Wells Fargo, JPMorgan, Citigroup (C) and PNC Financial Services Group (PNC) all reporting before the opening bell. Banks are facing greater liquidity constraints and are having to fund loan growth with higher cost deposits, debt and securities portfolio runoffs, Morgan Stanley analyst Betsy Graseck noted. Rapidly-rising interest rates and higher capital requirements are leading to an accelerating credit cycle. So financial institutions with excess capital, liquidity and positive operating leverage are best positioned long-term, she says. Wells Fargo’s adjusted earnings are seen sliding 3.5% to $1.13 per share on a slight revenue drop to $18.77 billion. Watchers expect JPMorgan’s earnings to drop 22% to $2.90 per share, while revenue climbs 8.4% to $31.13 billion.
Dow Earnings: United Health, Walgreens
The Dow industrials head into the third-quarter reporting season down more than 16% for the year, and feeling for the bottom of the stock market correction. In addition to JPMorgan, United Health Group and Walgreens Boots Alliance (WBA) report, with another seven due the following week. UnitedHealth earnings growth is expected to accelerate to 20%, after an 18% gain in Q2. Forecast revenue growth of 11.3% would be slower than Q2’s 12.6% gain. For Walgreens, analysts project a third straight quarter-over-quarter decline, with earnings of 77 cents marking a 34% drop vs. the year-ago period.
Analysts Lower The Q3 Earnings Bar
During the third quarter, analysts lowered their EPS expectations for S&P 500 companies by an aggregate 6.6%, to $55.51 on Sept. 29, down from $59.44 on June 30, according to FactSet. Analysts normally reduce expectations during a quarter, but during the past five years the average decline in quarterly expectations has been 2.3%. The average decrease over the past 80 quarters, 20 years, has been 3.8%. The third quarter’s EPS revisions marked the largest reduction since Q2 2020. The sectors seeing the heaviest cuts were materials (-14.9%), communications services (-13.1%) and consumer discretionary (-11.9%).
DWAC To Vote On Trump Extension
Digital World Acquisitions (DWAC) is the special purpose acquisition company with which Donald Trump’s Trump Media & Technology Group, the Truth Social parent, is attempting to merge into a public company. Shares are down 83% since March, as the Security & Exchange Commission wends through a yearlong investigation of the deal. DWAC shareholders are set to meet Monday, to determine whether there is support to extend the merger’s deadline. The level of support remains unclear. If the nays win, the merger could be called off and DWAC potentially liquidate. DWAC shares dropped 5% on Tuesday’s news that Elon Musk had shifted course and that his $44 billion Twitter (TWTR) acquisition was once again on, raising the possibility that the Donald could soon return to his massively popular Twitter account — possibly in time for November’s midterm elections.
Stock Market Earnings In Brief
Pinnacle Financial Partners (PNFP) is projected to report 8% earnings growth to $1.89 per share and roughly 17% revenue growth to $400 million with its Tuesday results. The Nashville-based bank has beaten earnings estimates every quarter since Q2 of 2020.
PepsiCo (PEP) will report Q3 2022 results before the stock market opens Wednesday. Analysts project earnings growing 3% to $1.84 per share. Revenue is expected to increase 2% to $20.7 billion, according to FactSet.
Two top India-based IT service firms report during the week. Wipro (WIT) reports fiscal Q2 earnings early Wednesday. Analysts estimate EPS of 6 cents, down a penny from a year earlier. Analysts project revenue of $2.79 billion, up 7%. There’s speculation Wipro could announce a new stock buyback. Larger peer Infosys (INFY) reports fiscal Q2 earnings early Thursday. Analysts estimate EPS of 18 cents, up a penny from a year earlier. Revenue will rise 12% to $4.51 billion, analysts estimate. Currency exchange rates could lower profit, analysts say.
Delta Air Lines (DAL) will report third-quarter earnings before the market opens Thursday. Wall Street predicts earnings will skyrocket 416% to $1.55 per share while revenue is expected to grow 40% to $12.9 billion.
Fastenal (FAST) reports Q3 results early Thursday morning. Analysts predict EPS of 48 cents, a 14% year-over-year increase, for the industrial supplies company. Wall Street forecasts sales growing 20% to $1.8 billion, according to FactSet.
Progressive (PGR) should see a 1,089% EPS rebound to $1.51 on an 11% revenue gain to $13.07 billion. The auto and property insurer reported premiums growth in July and August.
BlackRock (BLK) adjusted earnings are seen falling 29% to $7.73 per share for its results Thursday morning. Meanwhile the investment giant’s revenue is projected to fall 14% to $4.3 billion.
Commercial Metals (CMC) is set to report results for the September-ended fiscal fourth quarter early Thursday. Analysts expect the leading producer of steel reinforcing bar, or rebar, to earn $2.26 a share, up 79% from a year ago. Revenue is seen up 19% to $2.42 billion. CMC stock is about 17% off its high, but its Relative Strength line is hitting new highs, reflecting outperformance vs. the S&P 500.
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