Stocks Up Again On Earnings And Hopes For Better Second Half  Image: Bigstock Stocks jumped again yesterday with the Dow up 1.03%, the S&P up 1.21%, and the Nasdaq up 1.08%. In spite of Q2 GDP coming out and showing a -0.9% contraction, stocks surged after the news. It was a classic 'buy the rumor, sell the fact,' or in this case, 'sell the rumor, buy the fact.' (That saying is also commonly referred to as 'buy the rumor, sell the news,' and vice versa. But they mean the same thing.)
Stocks sold off in the first half of the year on fears (the rumor) we'd have a recession. And after yesterday's report came out (the fact, or the actual news of it), it looks like we did. With two back-to-back quarterly declines in GDP (-1.6% in Q1, and -0.9% in Q2), it shows the economy experienced a recession in the first half of the year. (A recession has long been defined by two quarters in a row of negative GDP.) Some will argue that we aren't in a recession (because of the strong labor market), while others will argue we are in a recession (based on the typical definition of one). That will be the argument that plays out in the coming weeks and months. But at this point, it probably doesn't matter. For one, there are two more estimates coming out for Q2 GDP in the next two months, which could be revised higher or lower. Second, it's the National Bureau of Economic Research (NBER), that actually calls it a recession or not. And since those numbers can continue to be revised up or down further down the road (although, it's hard to imagine 'revising away' nearly a full percentage point decline), the call won't likely be made until sometime next year, when the only ones who'll care then are historians. What investors care about now is what happens next. If the market anticipates an economic rebound, then stocks should follow suit. And that appears to be what we are getting now. The Fed is still forecasting positive GDP growth for the full-year. And if so, the worst-case scenario that traders had been pricing in when stocks were at their lowest would be way overdone. Moreover, with the economy slowing as it did (which is necessary to bring down inflation), there's the idea that the Fed will not have to raise rates as high as had been feared. And that has buoyed stocks as well. In other news, Apple reported earnings after the close and posted a 3.45% positive EPS surprise, and a 0.23% positive sales surprise. They didn't provide any formal guidance, but CEO, Tim Cook, said, "...we expect revenue to accelerate in the September quarter despite seeing some pockets of softness." They were up 0.36% in the regular session, and more than 3% in after-hours trade. Amazon also reported after the close and posted a -33.3% negative EPS surprise, but a 1.31% positive sales surprise. But their -$2 billion earnings loss came largely from their -$3.9 billion write down in their Rivian investment. That, and their positive outlook going forward (they are estimating Q3 revenue at $125-$130 billion for a mid-point of $127.5B vs. the consensus for $126.4B), has shares up by more than 12% after-hours. Today, we'll get another 142 companies set to report. And next week, there's another 1,849 companies on deck. It's been a great earnings season so far. And it looks like the major indexes are on pace to close higher for the week, for the second week in a row. Best,  Kevin Matras
Executive Vice President, Zacks Investment Research | 
Post a Comment
Post a Comment