Earnings beat! Market says: "So what?" 🔻
Paid subscriber analysis. Important week coming up.
As we prepare for two major events next week - the Treasury’s quarterly refunding announcement (QRA) and the FOMC meeting - I want to share with you our probabilities of what might happen, how this could affect bond and equity markets over the next two months, where does this put us in the macro playbook, and what the broader implications might be.
Next week you don’t want to miss:
Before we jump in the drivers of markets, a quick overview of what happened this week.
You probably noticed that most companies had an earnings beat. We had four of the maginificent seven reporting this week, MSFT, GOOGL, META, AMZN, and they all beat expectations.
As I anticipated in last week’s blog:
…with Q3 economic growth at 5% (perhaps that was peak growth?), it will be difficult to see earnings underperform.
I’m expecting good results from each, but as we’ve seen this week, this means nothing when the macro conditions are against you. We’re keeping the portfolio hedged, as mentioned above, and retain a bearish bias.
This is indeed what we have seen this week. US Q3 GDP growth was reported at 4.9% (huge!), meaning that the economy is still very resilient to rate hikes. Such high growth rates means it’s almost impossible for earnings of big companies to miss.
And yet, despite the earnings beat, most companies went down. Of the four big tech firms, all four beat earnings, and yet GOOGL and META sold off, while MSFT and AMZN, despite a positive initial reaction, are ending the week flat. Why? Isn’t it suppose to be the other way around?
Not when the macro conditions are unfavorable. Not when the 10Y Treasury yield was trading over 5% earlier in the week. Not when investor flows are shifting from equities into other assets.
The next big question is whether the 4.9% was peak GDP growth, and does it only get worse from now on?