WSJ's Take On the Week
What Third-Quarter Earnings Tell Us About What’s Next for Markets
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Quick takeaways
- The positive third-quarter earnings indicate the end of a slowdown and suggest re-accelerating growth, driven by expense-cutting rather than increased sales, with the hope for sustained economic growth and increased productivity supporting continued profit growth.
- Despite uncertainty around interest rates, there is anticipation of a Santa Claus rally in the fourth quarter and early next year, driven by tax law selling, retail investor optimism, and beaten-down stocks gaining momentum, although interest rate fluctuations may impact consumer spending and financial markets.
Deep dives
Earnings Season: Growth Re-Accelerating and Positive Outlook
The earnings season for the S&P 500 has shown positive results, with more than 80% of companies reporting higher earnings per share than analysts had estimated. This suggests that the slowdown in earnings is over and that growth is re-accelerating. Analysts expect this trend to continue not only in the current quarter but also into the next year. While profitability has improved, it is worth noting that companies primarily achieved higher profits by cutting expenses rather than selling more products. Looking forward, the hope is for sustained economic growth and increased productivity to support continued profit growth. However, negative guidance for Q4 indicates a more cautious outlook and suggests that interest rates may begin to impact consumer spending and company performance.
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