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Thursday, December 2, 2021

Due to strong earnings, Wall Street stocks are hovering at historical highs

Due to strong corporate earnings and the confirmation of loose monetary policies by large central banks, market sentiment continues to be boosted, and Wall Street stocks are expected to hit a series of highs on Monday.

The benchmark S&P 500 index edged up 0.2% in New York midday trading, and last Friday ended its best week since June, while the technology-focused Nasdaq Composite Index rose 0.3%.

As of Friday, the S&P 500 Index has closed at a record level for seven consecutive trading days. This year it is now up 25% and has more than doubled since the market crash caused by the coronavirus in March 2020.

Last week, US monthly job market data exceeded analysts’ forecasts, Pfizer reported that its late-stage test of its antiviral Covid-19 pill was positive, and the Fed pledged to “be patient” with interest rate hikes.

According to FactSet’s data, the quarterly earnings of the S&P 500 index component companies have exceeded analysts’ expectations by 10%, which raises concerns that high global inflation rates will weaken profit margins.

According to Goldman Sachs data, so far, the total quarterly earnings of companies listed on the Stoxx Europe 600 stock index have exceeded expectations by 7%. On Monday, the Stoxx index closed roughly flat.

But investors are now turning their attention to forecasts for a slowdown in corporate profit growth next year, as the strong earnings recovery brought about by the impact of the coronavirus in 2020 has gradually become the background.

“We may not see the same type of return in 2022,” said Zehrid Osmani, Martin Currie’s global portfolio trust manager. After the company got rid of the economic shock in 2020, he said: “Next year’s earnings forecast is obviously much lower, because this year has been a year of recovery. In addition, monetary policy will shift from easing to normalization.”

A histogram of S&P 500 index company earnings growth rates and earnings forecasts, as a whole, year-on-year, showing that analysts expect US earnings growth to slow

After Fed Vice Chairman Richard Clarida stated that the expected improvement in the labor market may guarantee an interest rate hike before the end of next year, the U.S. Treasury market resumed caution on Monday. Data released on Wednesday are also expected to show that overall US consumer price inflation rose to the highest level since 1990 last month.

“The inflation outlook faces upside risks,” Clarida said at an event at the Brookings Institution.

As debt prices weakened, the 10-year U.S. Treasury bond yield, which is the benchmark for government borrowing costs, rose 0.04 percentage points to 1.49%. The five-year Treasury bond yield rose by 0.06 percentage points to 1.11%.

These moves came after a series of relatively modest updates by the central bank governor prompted a rebound in the government bond market last week. The Fed took a clear move to reduce its monthly bond purchases by $120 billion, but Chairman Jay Powell emphasized that “we don’t think this is the time” to raise interest rates. After the Bank of England previously stated that it was prepared to raise interest rates, it also maintained interest rates at 0.1%.

Other market trends

  • In Asia, Hong Kong’s Hang Seng Index fell 0.4% and Tokyo’s Nikkei 225 Index fell 0.4% as traders became cautious at the beginning of the Sixth Plenary Session of China’s ruling party, which is expected to ensure an unprecedented third term for Chinese President Xi Jinping .

  • As US President Joe Biden’s $1.2 trillion infrastructure spending bill approved by the House of Representatives late on Friday boosted sentiment in the commodity market, Brent crude oil, the oil benchmark, rose 0.9% to $83.43 per barrel.

  • European natural gas contracts delivered in December rose by about 6% to 78 euros per MWh, as Russia’s hopes of increasing supply to address shortage concerns fade.

  • The U.S. dollar index, which measures the U.S. dollar against six other currencies, fell 0.3%.

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