Major Earning Beats Propel Major Indices to Six Straight Positive Weeks

Good Afternoon. This was a busy earnings week and almost all major companies that reported earnings beat expectations. The three major indices recorded their sixth straight positive week, marking the longest weekly advances in 2024 for both the Dow and S&P 500.

The main highlights for the week are:

• Based on this week's earnings, the tech sector is still going strong, and upcoming tech earnings should support markets amid election volatility.

• Banks also reported strong results. The significant gains came from investment banking fees and trading revenue. Thanks to the improved outlook for capital markets, the macro environment is more suitable for investment banks such as Goldman Sachs and Morgan Stanley; they are expected to do better in 2025.

• It is important to note that American Express reported solid earnings and set aside smaller loan loss reserves than peers. This is when overall credit card delinquencies are rising. This shows that the affluent class, which is Amex’s primary customer base, is doing well, and the lower-income section of society is feeling the pressure. This trend will continue as income inequality worldwide continues to rise.

  

  Source: Reuters

• Even though markets are up significantly year to date, strong earnings will continue to boost them. Markets always find a reason to correct when things get overheated in the short term. October is typically volatile, and US elections are also near, so some pullback is possible. However, markets will follow corporate earnings in the medium to longer term, and I don't see any concerns with earnings growth based on the current macro environment.

For the week:

• The S&P 500 is up 0.85%, the Nasdaq is up .80%, and the Dow 30 is up 0.96%.

  

  Source: barchart

CNN's Fear & Greed Index now stands at 75 (Extreme Greed) out of 100, up 1 point from last week. Details here

The top five trending stocks on Reddit are Nvidia, SPY, Tesla, Bright Minds Bioscience, and Netflix. Read More

Here is a summary of this week’s key economic releases:

• Retail sales rose by a seasonally adjusted 0.4% in September, improving from the unrevised 0.1% increase in August and surpassing the Dow Jones forecast of 0.3%. This highlights the continued resilience of the U.S. economy. Lower gasoline prices, which left consumers with more disposable income to spend at restaurants and bars, likely contributed to this.

Target Rate Probabilities for Nov 7th FOMC Meeting:

CME FedWatch: Data as of 19 Oct 2024 02:31:30 CT

The Biden administration's budget for fiscal 2024 exceeded $1.8 trillion, marking an increase of over 8% from the previous year and ranking as the third highest on record. Notably, interest expenses reached $1.16 trillion, surpassing the trillion-dollar mark for the first time. Read More

The firm launched Robinhood Legend, a desktop platform for active traders, offering advanced charting tools for in-depth stock analysis. Additionally, Robinhood announced plans to introduce futures trading and index options to its mobile platform soon. Read More

As detailed in a regulatory filing, the U.S. securities regulator has fast-tracked approval for 11 exchange-traded funds (ETFs) to list and trade options based on spot bitcoin prices on the New York Stock Exchange. Read More

On Wednesday, federal regulators required businesses to make canceling subscriptions as easy as signing up. The Federal Trade Commission passed a “click-to-cancel” rule to simplify the process of ending unwanted recurring payments. Read More

TD Bank has pleaded guilty to money laundering and Bank Secrecy Act violations, agreeing to pay U.S. authorities over $3 billion in penalties. Read More

Uber is reportedly exploring a bid for travel booking company Expedia as part of its strategy to expand into the travel sector. Read More

Bank of America beat analyst expectations for third-quarter profit and revenue, driven by strong trading results. The bank reported a 12% drop in net income due to higher loan loss provisions and rising expenses. Net interest income decreased but slightly surpassed estimates. Read More

Goldman Sachs exceeded third-quarter profit and revenue estimates, driven by strong stock trading and investment banking results. Equities trading saw an 18% revenue increase, surpassing expectations, while investment banking revenue rose 20%, fueled by robust debt and equity underwriting. Read More

Citigroup reported third-quarter results that beat Wall Street expectations, with investment banking and wealth management growth. Citi’s banking division reported an 18% increase in revenue year over year, led by a 31% gain in its investment banking arm. Wealth revenue rose 9%. Read More

Morgan Stanley topped analysts’ estimates for third-quarter profit as each of its three main divisions generated more revenue than expected. Read More

Netflix posted third-quarter earnings that beat the top and bottom lines as its advertising business continued to grow. The streamer’s ad-tier memberships jumped 35% quarter over quarter. Read More

Johnson & Johnson raised its 2024 profit and sales forecasts on Tuesday after reporting strong sales of oncology drugs and quarterly results that beat Wall Street expectations. Read More

Abbott Laboratories slightly lifted its annual profit forecast on Wednesday. It beat Wall Street estimates for quarterly earnings on strong demand for its continuous glucose monitors (CGMs) and other medical devices. Read More

UnitedHealth Group reported third-quarter 2024 results that reflect broad-based growth in the number of people served by Optum and UnitedHealthcare. Read More

Taiwan Semiconductor reported excellent results with 36% YoY revenue growth. Read More

American Express reported stronger-than-expected third-quarter profits, driven by disciplined expense management, even amid softer consumer spending. Thanks to its affluent customers, the company has been able to maintain smaller credit loss provisions compared to competitors and limit expenses on rewards and incentives. This strategy allowed the credit card giant to exceed profit expectations despite slower revenue growth. Read More

Equity Exposure - The Main Factor For Wealth Inequality: 

According to the CNBC report, Elon Musk is on track to become the first trillionaire by 2027. Whether this happens or not and at what time will vary. However, it's incredible to think about one person having such an amount of wealth. The reason for Elon Musk's wealth is his increased holding and rising value of Tesla stock. The main point is that the value of Tesla stock drives this wealth creation. Now, Musk is a genius to create innovative businesses, which led to his wealth creation. People like Musk are exceptions, for sure. However, the critical thing to note is the benefit of equity exposure for wealth creation. Wealthier individuals generally have a larger share of their assets in the stock market. In contrast, middle-income households tend to invest more of their wealth in real estate.

According to Federal Reserve data, as of mid-2024, the wealthiest 1% of Americans held nearly 50% of all U.S. stocks, while the bottom 50% owned roughly 1%.

In short, equity exposure is a significant factor contributing to wealth inequality. The higher the equity exposure, the better the chance for an individual to gain substantial returns. I wrote a blog a year ago around a similar theme to argue that renting is better than owning a home, at least in the initial phase of your career, as it gives you a better opportunity to increase your equity exposure and the flexibility and affordability to take risks. Check my blog for the details, including tools to analyze rent vs. buy.

U.S. Treasury Market - Key Developments and Future Outlook:
The Treasury market is the deepest and most liquid market in the world. However, some episodes of loss of liquidity or deterioration in its functioning led to the formation of the Inter-Agency Working Group for Treasury Market Surveillance (IAWG) in 2021. This group issued its first report in November 2021; since then, it has issued yearly progress reports. The latest progress report was issued on September 20th, 2024.

The 2024 Staff Progress Report highlights significant advancements in enhancing U.S. Treasury market resilience, including launching a buyback program, implementing new SEC dealer registration rules, and improving data transparency initiatives. In my blog post this week, I covered the ongoing efforts by the Inter-Agency Working Group across the five workstreams below and their significance.

Source: primalthesis.com

Why I Will Never Invest In a Banking Stock:

Banks reported strong earnings in the last two weeks. The near-to-medium-term outlook for banks (especially investment banks) looks good due to the improved outlook for the capital markets, which will continue to drive investment banking fees and trading revenue. However, my blog post argues against investing in a bank due to fragile business models, susceptibility to bank runs, and low returns due to regulatory pressures. I believe better investment options with superior risk-reward ratios are available in other sectors. This is not investment advice; it is just my opinion.