Market Preview: Much Needed Relief Rally Stabilizes Market, Earnings from Amex and P&G


Markets took a much needed rest Wednesday after staging a major relief rally on Tuesday. Netflix (NFLX) earnings, released after the close Tuesday and beating estimates by over 30%,  set the tone for Wednesday’s trading, and ensured the market would not give back much of Tuesday’s rally. Markets finished relatively flat on the day. While focus is turning back to earnings and away from rates for the time being, earnings call commentary will likely drive the market the rest of the week. Earnings are expected to be strong, but many analysts are looking to executive leaders to provide input to help model out tariff and rising rate impacts. Whether rising revenue can continue to outpace rising costs is the big question driving the market.

Thursday earnings will include American Express (AXP), Intuitive Surgical (ISRG) and Textron (TXT). Analysts are expecting good news from Amex with increasing customer count as well as additional spending by the customer base. The stock is up about 5% in 2018 after the recent pullback touched off by the threat of rising interest rates. The company should provide a good gauge of how the initial rate raise is impacting customer spending. Textron announced a deal with NetJets to provide up to 300 planes on Monday. The Jet builder moved up on the news, but gave back those gains by Wednesday. The jet market has been kind to Textron this year, and analysts will be looking for a 2019 outlook that is as rosy as 2018.

Thursday’s economic calendar includes weekly jobless claims and the Philly Fed Business Outlook Survey. The October survey number is expected to decline slightly from a surge in September. The September number included an unusually large drawdown in inventory, which analysts do not believe will be repeated in October. Leading economic indicators will also be released Thursday, and are expected to increase to .5% from .4% in August. The number can be slightly discounted as September stock market gains have vanished through mid-October. Friday, existing home sales numbers are expected to continue a decline that is an inverse image of rising mortgage rates. The uptick in rates has hit the existing sales number hard over the past 5 months.

Major earnings announcements will be released Friday from heavy-hitters Procter & Gamble (PG), Honeywell (HON) and Schlumberger (SLB). While making a nice move since May, P&G’s stock is down almost 12% on the year. Should a rotation out of growth and into defensive stocks emerge, investors will want to keep an eye on the quality of Procter & Gamble’s earnings coming out of this latest quarter, as the stock may become a potential portfolio addition. With both oil prices and rig counts rising, Schlumberger stock has not kept pace. Investors should watch this earnings quarter closely for the world’s largest oilfield services company. Any positive surprises may put in a bottom for the battered stock.

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