This week the American indicators showed positive dynamics. Thus, the S&P 500 rose 1.6% over the week and updated its historically high level at around 4,560 points. The market is supported by strong corporate reporting showing that higher commodity prices and labor shortages are not having a significant impact on companies’ bottom line. We believe the broad index maintains upside potential. We project the S&P 500 to reach 4,800 by the end of this year, which is in line with 5% upside potential from current levels.
The Nasdaq 100 is up 1.4% over the week. Technology stocks are more responsive than others to rising yields on US government securities, as their quotes usually include the prospect of a rapid increase in profits, and an increase in rates makes potential future profits less valuable. This week, the interest rate for ten-year US Treasuries rose to 1.673%, which is the highest level since May. The growth in government bond yields makes the shares less attractive, especially at the current, rather high quotations. As soon as bond yields rise to a more or less significant level, the argument that there is no alternative to investing in stocks becomes unconvincing. The market has not yet reached this point, but is moving towards it, so investor concerns are growing.
The regional economic survey Beige Book, published by the Fed on Wednesday, showed that economic activity in the United States in August-September grew at a pace from modestto moderate. At the same time, problems in supply chains, as well as a shortage of labor, limited economic growth and contributed to increased inflation, the review notes. The index of leading economic indicators of the United States in September rose by only 0.2%. In August, the rise was 0.8%. The Conference Board index shows the expected development of the country’s economy in the next 3-6 months. It is calculated on the basis of ten key economic indicators, seven of which are known even before the publication of the indicator.
The season of corporate reporting continues in the USA. So far, about 70 companies have already published their results, the shares of which are included in the S&P 500. Profits in 86% of cases turned out to be better than the consensus forecast, which confirms the thesis that companies remain flexible, despite the unprecedented challenges of the past 1.5 years. In reports from “big” tech companies this week, investors will be looking for information regarding the global shortage of semiconductor components, as well as signals about how large businesses can shift their spending growth onto consumers.
On Monday, a business summit of the Association of Southeast Asian Nations will take place in Brunei, at which US President Joe Biden and Chinese Premier Li Keqiang are expected to speak. On the same day, Facebook will publish quarterly reports. On Tuesday, the EU energy ministers will discuss the rise in energy prices at an extraordinary meeting, and the US will publish the sales of new buildings for September and the consumer confidence index from the Conference Board for October. Google and Twitter reports will also be released on Tuesday. On Wednesday, the US will release preliminary data on durable goods orders in the US for September. On Thursday, the ECB will publish its decision on its key interest rate, as well as a press conference by Laggard. The market expects the European regulator to keep the rate at the current level. Moreover, the ECB may begin to prepare the market for a decision on the purchase of assets, which may follow in December. Amazon and Apple will also publish their quarterly reports on Thursday.