A positive start to a new earnings season and late-week hopes for a near-term easing in Fed rate hikes lifted investors’ spirits and powered stocks to gains for the week. The Dow Jones Industrial Average jumped 4.89%, while the Standard & Poor’s 500 advanced 4.74%. The Nasdaq Composite index added 5.22% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, gained 1.66%.1,2,3
The stock market narrative shifted last week from Fed interest rate hikes (a persistent drag on investor sentiment) to corporate earnings, which boosted investor enthusiasm with better-than-expected results. Stocks surged in the first two days of trading on the strength of positive earnings surprises, aided by a modest pullback in bond yields and news that the U.K. was scrapping its tax cut plans. Mid-week, stocks surrendered some gains on a stronger U.S. dollar and rising bond yields. But on Friday, comments by a Fed official that hinted at a possible relaxation in Fed rate hikes sent stocks soaring to close out a good week.
Investors were approaching the new earnings season with a fair amount of trepidation amid an environment of higher interest rates and a slowing economy. The concern has been that poor earnings may drag stock prices lower from current levels. Early earnings results have provided investors with mostly positive surprises. With 88 companies comprising the S&P 500 index reporting, 75% reported profits above analysts’ expectations, well above the 66% long-term average.4
1. The Wall Street Journal, October 21, 2022 2. The Wall Street Journal, October 21, 2022 3. The Wall Street Journal, October 21, 2022 4. Refinitiv, October 20, 2022