Markets got off to a slow start this week but quickly bounced back to end the week higher with the S&P 500 gaining 1.82% overall. The narrative primarily revolved around the start to earnings season with the big six banks reporting along with a few other big names. Meanwhile new economic data gave some updates on inflation with the Consumer Price Index (CPI) and Producer Price Index (PPI) numbers for September releasing this week.
It’s Earnings Season!!! Woot! Woot!Earnings season is off to a rocking start with Bank of America (BAC), Wells Fargo (WFC), Citigroup (C), JPMorgan Chase (JPM), Morgan Stanley (MS), and Goldman Sachs (GS) all beating both earnings and revenue estimates. In addition, Delta Airlines (DAL) and Walgreens Boots Alliance (WBA) both managed to surpass economists estimates while Progressive (PGR) came in just shy of expectations.
A theme among the largest banks was that credit reserve releases accounted for a significant portion of earnings as reserves set aside at the beginning of the pandemic in case of a large uptick in defaults are being unlocked as the economy improves. The development is a strong sign that banks expect the economy to continue its recovery and aren’t expecting a massive wave of defaults anytime soon.
Overall earnings results were above estimates across the board outside of very few outliers.
Transitory or Not Transitory? That is the Question.Outside of the exciting start to earnings season, new economic data provided an update on investors favorite topic right now, inflation. Both CPI and PPI numbers came in right near estimates with a 0.4% and 0.5% rise respectively. Another sizable monthly increase for sure but was mostly driven by food and energy prices as core CPI and PPI both came in at a 0.2% increase.
Energy prices in particular accounted for nearly 40% of the overall increase in PPI for September while CPI results showed a similar story. In addition, new car prices continued to push higher as the global chip shortage is ongoing.
The continued rise of prices has led to PPI showing its highest recorded 12-month change in final demand prices of 8.6%. Many of the factors pushing prices higher are transitory as the Fed has repeatedly stated, but are yet to be resolved and doesn’t change the fact that these pressures are causing massive price spikes in various industries.
Meanwhile, retail sales rose 0.5% last month following a 0.9% increase in August. Economists were expecting a decrease of 0.3%.
All in all, the S&P 500 gained 1.82%, the Dow Jones Industrial Average rose 1.58%, and the NASDAQ increased 2.18%.