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Sluggish No Longer, Bullish Again

Updated: Apr 6, 2023

Holding fast to recent performance, stocks made significant gains today. Notably, the S&P 500® Index has had several weeks of gains following Q3 solid earnings and a strengthening labor market.

  • The S&P 500 added +8.0% from October 15 through November 5.

  • The S&P 500's profit report reflects actual Q3 blended earnings per share (EPS) of +40% year-over-year on sales growth of over +17%, which is better than previously published analytical predictions of +24% year-over-year EPS gain on sales growth of +12%.

The endgame:

Corporate America has exceeded profit expectations in the Q3 despite concerns that supply chain and inflation pressures would result in companies missing expectations. Thus, these stronger-than-predicted Q3 profits must have triggered higher stock prices.

And, although smaller businesses still try to weather an unstable environment in the wake of the pandemic, S&P 500 companies seem to manage supply pressures, pass on higher costs and protect profit margins. This coupled with solid demand equals upbeat company outlooks, which have allowed stocks to remain strong.

I would be remiss if I did not mention strong job growth, which could empower stocks through the end of the year. +531,000 new jobs were added last month, and unemployment fell to 4.6%. And, even, more may return to work as pandemic concerns fade, savings diminish, higher wages bring people off the sidelines and activities return to normal.

If aggregate demand for goods and services holds, businesses should continue hiring; the labor market should strengthen in 2022, especially in areas depressed by the pandemic. This is positive for growth, spending and corporate profits next year.

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