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Resilience Is the Word

Posted October 25, 2021 at 9:45 am
Patrick J. O’Hare

Records were set last week by the S&P 500 and Dow Jones Industrial Average. More could be coming this week, but there is a big earnings hill to climb if that is going to happen.

Roughly one-third of the S&P 500 will be reporting results for the September quarter, so there will be a hefty cross section of industries/sectors represented and providing a better picture of cost pressures and end demand in an inflationary environment.

The biggest of companies — Apple (AAPL)Microsoft (MSFT) (AMZN)Alphabet (GOOG), and Facebook (FB) — are all on this week’s list of reporters. Facebook will report after today’s close.

These are the reports that will literally outweigh all others as a market mover.

We heard this morning from a smaller batch of companies, but two of the more prominent reporters — consumer staples company Kimberly-Clark (KMB) and fast casual restaurant operator Restaurant Brands Intl. (QSR) — called attention to supply chain pressures while still reporting decent sales growth.

Kimberly-Clark for its part, though, said its costs were higher than expected and subsequently cut its full-year EPS and organic sales guidance. Shares of KMB are down 3.0%. The stock of QSR, on the other hand, is trading 1.7% higher even though its sales came up shy of expectations because of labor and supply chain challenges.

We expect to hear similar pronouncements throughout the week. How the market chooses to handle that is what remains unknown. The market thus far looks undaunted.

Currently, the S&P 500 futures are up six points and are trading 0.4% above fair value, the Nasdaq 100 futures are up 42 points and are trading 0.4% above fair value, and the Dow Jones Industrial Average futures are up 22 points and are trading 0.4% above fair value.

We would contend that the resiliency factor is at work again, meaning that the lack of selling pressure last week, even when many thought that market was due for a pullback, continues to pull in money chasing the move out of fear of missing out on further gains.

The S&P 500 saw its win streak end on Friday, but, to be fair, it dipped just five points, or 0.1%, after gaining as much as 6.4% from its low on October 4. In other words, it was resilient.

There are a few items lending to the resilient tone in the futures market this morning.

First, Tesla (TSLA) is up 4.2%, bolstered by a slate of positive-sounding news items that includes Hertz Global (HTZZ) ordering 100,000 cars by the end of 2022.

The other catalyst includes reports that the Democrats are closing in on a deal for their social spending package. House Speaker Pelosi said they are pretty much there with about 90% of the bill agreed to and written. She expects things to be finalized by the end of the week, paving the way for a vote on the $1 trillion bipartisan infrastructure bill as well.

Separate reports suggest the social spending package is likely to be around $1.75 trillion, which is something Senator Manchin (D-WV) has said he would be open to. Senator Manchin reportedly also isn’t opposed to alternative pay-for proposals that include a tax on billionaires’ unrealized capital gains.

That proposal just might have its day in court, according to Axios, but for now it seems to be serving as a bonding agent for Democrats looking to pass a social spending package.

Originally Posted on October 25, 2021 – Resilience Is the Word

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