Finimize - 😯 Companies open up

🔍 The focus this week: Company Updates

The first three quarters of the year were a standout for US stocks. Despite the threats from high interest rates, rising geopolitical tensions, and lofty valuations, the S&P 500 delivered its best performance so far this century, up around 21%.

Now, before the summer, you might’ve said the gains were all due to the AI frenzy, with Big Tech’s stocks driving most of the markets’ jump. But that explanation doesn’t wash anymore. In the third quarter, less buzzy sectors like utilities, real estate, industrials, and financials led the way, each climbing over 10% and leaving tech in the dust. And with interest rates coming down and expected to fall further, borrowing-sensitive sectors like utilities and real estate may have further to rise. With market gains spreading across industries and the economy still holding its own, the outlook for stocks seems rosier than it’s been in a long time. It’s no wonder the big US indexes are hitting new records.

Of course, companies will now have to live up to the hype. Expectations are through the roof – not just for tech, but also for defensive sectors like consumer staples, healthcare, and utilities, all of which have seen their valuations soar. Investors will want proof these companies can deliver before they double down, hoping for more market gains.

And in that sense, this week’s earnings could provide some clues about what stocks do for the rest of the year. Watch for what the big banks say about loan quality and credit risks. Keep an eye on consumer trends from companies like Johnson & Johnson and Procter & Gamble. And pay close attention to signs that lower interest rates might be boosting corporate guidance and profits. Optimistic signals from banks and rate-sensitive industries would suggest even brighter days ahead for the stocks.

That said, remember that risk is a vicious thing – it’s often highest when things seem the safest. Wall Street’s fear gauge (the VIX) has crept up lately, sitting higher than you’d expect with shares riding so high. Meanwhile, in Europe, stocks have taken a few shots at their all-time records, but haven't managed to break through yet – which tends not to be an encouraging sign. That doesn’t mean the rally’s over – it’s just a reminder never to underestimate the dangers when everyone’s feeling good.

📅 On the calendar

• Monday: India inflation (September).
• Tuesday: Eurozone industrial production (August), France inflation (September), UK employment (September). Earnings: Bank of America, Citigroup, Goldman Sachs, Johnson & Johnson, UnitedHealth.
• Wednesday: UK inflation (September), Italy inflation (September). Earnings: Abbott Laboratories.
• Thursday: ECB interest rate decision, US retail sales (September), US industrial production (September), Japan inflation (September), China economic growth (Q4), China industrial production and retail sales (September). Earnings: Blackstone, Morgan Stanley, TSMC, Netflix.
• Friday: US housing starts (September), UK retail sales (September). Earnings: American Express, Procter & Gamble, SLB.

👀 What you might’ve missed last week

US

• US inflation rose more than expected, suggesting a tricky final mile.
• A new hurricane tested catastrophe bond investors’ resolve.

Asia

• The excitement around China’s big stimulus plans showed signs of fading.

✍️ What does all this mean?

US consumer prices jumped more than expected in September, up 2.4% from last year. Housing costs helped drive the hop, but even the so-called core measure – which excludes more volatile things like food and energy – was peppier than forecast. Even more unsettling, the three-month core annualized inflation rate actually ticked higher. Now, that may not mean inflation’s roaring back, but it does reinforce the idea that the “last mile” in this battle may prove tricky. And that means the Federal Reserve will face a tricky call in November: cut interest rates again or play it safe until inflation pipes down.

Catastrophe bonds – which promise chunky yields as long as Mother Nature plays nice – were the rage this year. Insurance companies, anticipating a harsh hurricane season, issued “cat bonds” in record numbers and investors mostly lapped them up. It’s easy to see why: the assets gained 20% last year. Still, that wager looked anything but shrewd last week as Hurricane Milton barrelled toward Florida, prompting estimates that the bonds would take a 15% hit. In the end, Milton wasn’t quite as devastating as feared, and the losses are likely to stay in the single digits. And that near-miss isn’t scaring everyone off: some are calling this the perfect time to buy in.

Chinese stocks are giving some serious déjà vu vibes. A series of unexpected stimulus moves sparked a rip-your-face-off rally recently, with the KWEB China Internet ETF (ticker: KWEB; expense ratio: 0.7%) climbing over 50% from its September lows. But as has happened many times before, the excitement faded on Tuesday when a meeting of the Chinese economic planning agency came and went without any new spending boosts. Investors aren’t giving up just yet, though: they’re still hoping policymakers will unleash the “big bazooka” stimulus that will send markets soaring. And with Chinese stocks looking cheap and underinvested, there could be more upside ahead.

Stay classy ✌️

Your Finimize Analyst team