Back Up The Wall Of Worry

European stocks hit records Monday and Japanese shares surged, as global equities looked to build on October’s momentum into year-end.

More than two-thirds of European companies topped EPS estimates so far this earnings season, although the magnitude of beats is smaller than the previous three quarters, JPMorgan’s Mislav Matejka said.

Morgan Stanley called European results “very healthy given the trickier operating backdrop.” “Q3 results are coming in well ahead of expectations in aggregate,” the bank remarked.

Matejka suggested stocks can keep climbing the proverbial “wall of worry,” and that it’s too early to be concerned about policy mistakes from central banks. Liquidity is plentiful and the Fed isn’t likely to get too hawkish, the bank reckoned.

The Stoxx 600 is gunning for a fifth consecutive weekly gain. BofA suggested the party may be coming to an end, though. “The earnings upgrade cycle is drawing to a close,” the bank’s Sebastian Raedler wrote.

For Barclays’ Emmanuel Cau, equities can continue to rally. “Earnings fundamentals, which is the primary long-term driver of equities, should support sentiment into year-end,” he said.

In Japan, a surprisingly strong election performance (relative to bleak projections, anyway) for the ruling LDP quelled concerns that Fumio Kishida will struggle to implement his agenda.

Kishida is just a month into the job. He replaced Yoshihide Suga, who bowed out of the LDP leadership race in early September, amid sagging popularity. The better-than-expected election margin points to a semblance of stability. The Nikkei surged the most since June (figure below).

“The result bolsters the former foreign minister’s chances of staying on as leader long enough to make his mark in a country known for its ‘revolving door’ premiers,” Bloomberg wrote, underscoring the anomalous nature of Shinzo Abe’s long tenure.

“Kishida vowed to act fast on his economic program, saying he would seek to pass an extra budget as soon as possible, make clean energy investment a priority, [step up] tax breaks for companies that raise salaries and [establish] a panel to look into raising pay for nurses and others in the care-giving sector as soon as next week,” the same linked article noted.

It wasn’t all good news on Monday, though. Over the weekend, China’s official PMIs for October showed the manufacturing sector in contraction territory for a second month, while the non-manufacturing gauge missed estimates.

The country is dealing with another COVID outbreak, and Beijing’s “zero tolerance” containment policy likely means services sector activity could take another hit in November.

On Sunday, Xi locked 34,000 people inside Shanghai Disneyland. Everyone was tested.

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5 thoughts on “Back Up The Wall Of Worry

  1. I traveled out to California this weekend (near Sacramento) to visit my brother & his wife. Airports are full, airplanes had no empty seats. We were not the only ones “out and about” spending money, either.
    I am guessing the Q4 2021 EPS might be a bit choppy, but the guidance for Q1 2022 EPS will be strong- as employment/supply issues continue to fade. With all of the money trying to get out of bonds and into equities, investors will be forgiving of any Q4 choppiness or disappointments.

    1. Ah, what a quaint notion: The economy as a leading indicator for stocks! Next thing you’ll tell us that earnings matter as well!

      Wealthier people have the money, time and desire to travel. A good-sized proportion of the population but not the majority.

      We’ll see said the blind man to the deaf man.

    2. FWIW one reason for “full flights” is there aren’t as many of them. Seems the airlines cut too far back for COVID and have yet to staff up. Would be interesting to know comparison of actual number of passengers flying; and business vs. pleasure etc.

      1. From the TSA website: The number of travelers, in millions, going thru TSA this past Friday, Saturday and Sunday.
        2021: 1.9, 1.5,1.8
        2020: .9, .6, .9
        2019: 2.5, 1.8, 2.3

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