Nvidia, Sherwin Williams Join Dow; Oil Surges On OPEC+ Production Delay
Stocks fell last week as markets gave mixed signals on earnings and tomorrow's election. The S&P 500 and Nasdaq Composite both fell around 1.5% on the week while the Russell 2000 and Dow Jones Industrial Average closed nearly unchanged. But that was last week and this week is full of potential volatility.
Let's start with earnings. Through Friday, 70% of the S&P 500 has reported. According to FactSet, between those who have reported and what is expected from those scheduled to report, the blended earnings growth rate for the quarter is tracking at 5.1%. This week, 103 more companies are scheduled to report. Among some of the bigger names, Palantir will report after the close today. Tomorrow, Super Micro Computer is scheduled to report. This one will be very interesting because just last week, Ernst and Young resigned as the company's official auditor. Last week alone, shares fell by 45%.
As of Friday's close, the 12-month forward looking P/E ratio for the S&P 500 is 21.3. Earnings estimates for the fourth quarter call for 12.7% growth and full year 2024 estimates are at 9.3%. Looking out to next year, earnings are forecast to grow 15.1%. Therefore, despite Tuesday's election, analysts are anticipating a strong close to this year and next year. However, if there is one potential canary in the coal mine, it's bonds.
Bond yields have been climbing steadily since the beginning of September. Last week, the 10-year note closed at 4.36%, its highest level since the very beginning of July. The 30-year is hovering around 4.5%. Higher interest rates mean higher borrowing costs and that can not only slow an economy, but it can be inflationary. I think this is something to keep an eye on.
This week's economic calendar has some important reports scheduled, but even the Fed's decision on interest rates could take a potential back seat to the election. In fact, there is near certainty that rates will be cut by a quarter of a point this week; however, unlike most Fed decisions that come out on a Wednesday, this week's announcement is pushed back to Thursday because of the election.
Let's make no mistake, Tuesday is a big day and while I avoid being political in these columns, elections have consequences and markets can react. Mix in earnings season, a Fed decision and renewed tensions in the Middle East and you have a potential powder keg. If you want proof, just look at the expected move in the S&P 500. Last week, the expected move for the week was 90 points. This week, the expected move is over 140 points in either direction or a total range of 280 points. That is a roughly 5% potential range for the week.
Some other items of note this morning include a change to the Dow Jones Industrial Average. Nvidia and Sherwin Williams will be added to the index, replacing Intel and Dow Inc. Boeing's largest machinist union is set to vote today on the company's latest proposal to end the current strike. Constellation Energy shares are lower by around 2% in premarket after the company reported earnings. One interesting item of note was the company announced a 20-year agreement to help power Microsoft's Artificial Intelligence (AI) datacenters. And Warren Buffett has trimmed his stake in Apple. With this most recent sale, Berkshire is now sitting on a record $325 million in cash, according to Bloomberg. Over in the commodities space, oil is higher by 3% in premarket after OPEC+ pushed back a scheduled increase in production that was to begin in December and Iran is reportedly planning more strikes against Israel.
For today, I am expecting a lot of pre-election positioning. That may mean a bit of beneath the surface activity such as option positions. I actually expect that type of activity for Tuesday as well. If the last election is any indication, it's quite possible we won't have definitive results until later in the week. I think the longer it takes to declare a winner, the more swings we're likely to see throughout the week. But I'll point back to the top of this column and the earnings expectations moving forward. I know it's easy to get swept up in the emotion of the moment, but when it comes to markets, very few good decisions originate from emotion. As always, I would stick with your investing plans and long-term objectives.