Good morning, Bull Sheeters
Bond yields are climbing, and yet global stocks and U.S. futures are holding their own this morning. That’s because knockout corporate earnings are pushing investor sentiment ever higher.
Can that last? I take on that question in today’s essay.
The rally in Bitcoin, meanwhile, continues its impressive run. The king of cryptocurrencies came within 400 bucks—pfttt, that’s tipping money for Bull Sheet readers—of matching its all-time high overnight.
Let’s check in on the headlines moving markets.
Markets update
Asia
- The Asian markets are mostly higher with the Hang Seng up 1.4% in afternoon trading.
- For a second straight day, HSTech Index, the bellwether for Chinese tech stocks, was gaining. That’s despite Chinese President Xi Jinping reiterating his pledge for strong oversight of the country’s tech giants.
- Shares in Netflix are down 1.7% in pre-market despite the streaming service reporting knockout subscriber numbers after the bell yesterday, helped by strong growth in Asia and Europe, and the popularity of its South Korean import Squid Game.
Europe
- The European bourses were bouncing in and out of positive territory, with the Stoxx Europe 600 up 0.15% two hours into the trading session. Healthcare and staples were the leading the way higher.
- Speaking of staples…Shares in Nestle were up nearly 3% at the start after the food giant raised its sales outlook, shaking off supply-chain bottlenecks and inflationary pressures.
- Chips juggernaut ASML delivered a sales forecast that came in below estimates, sending shares down more than 3% at the open. The Dutch tech giant has a virtual monopoly on high-end semiconductors, which makes it beloved by Silicon Valley giants, and feared by the Biden Administration.
U.S.
- U.S. futures are flat, but off their lows. That’s after the S&P 500 notched a fifth-straight day of gains on Tuesday, helped by strong earnings.
- Shares in United Airlines are bouncing back in pre-market despite the airline reporting that COVID really ate into passenger numbers last quarter, but not enough to ground the larger recovery.
- Facebook is reportedly mulling a big re-branding that could be announced as soon as next week. Out would be a big emphasis on social media. In: something called “the metaverse.” Psst, here’s your guide to the metaverse.
Elsewhere
- Gold is up, trading above $1,770/ounce.
- The dollar is a touch higher.
- Crude is down with Brent trading above $84/barrel.
- Bitcoin‘s impressive rally continues, with the king of crypto up 3% in the past 24 hours to trade around $64,000. It’s up more than 12% in the past week.
***
Upside surprise
One week ago today, earnings season kicked off. And, on cue, stocks are on a five-day winning streak.
That’s no coincidence. According to Deutsche Bank, 50 of the 57 S&P 500 firms that have thus far reported have delivered bottom-line beats. That’s helped push the benchmark S&P to within 26 points—less than 1%—of its all-time high.
At the same time, the VIX is trending to a range that can only be described as: bullish. The so-called fear index looks out 30 days, seeking to measure the relative riskiness of what lies ahead. It’s not a perfect gauge, but investors have come to read a lower VIX number as a risk-on buying opportunity. The VIX is down more than 18% in the past five trading sessions.
This is not to say that strong corporate results wipes the labor issues, supply-chain backlogs, inflation and even COVID concerns off the table.
Jeffrey Buchbinder, equity strategist at LPL Financial, is pretty impressed with the first batch of earnings, but he’s not ready to celebrate just.
He points out four issues that could bring earnings back down to Earth:
- Slower economic growth, particularly hitting manufacturing demand, from the Delta variant.
- Supply-chain challenges putting the squeeze on profit margins. “Nike cited shipping delays and factory shutdowns in Vietnam for lowering its guidance,” Buchbinder writes. “FedEx lowered guidance amid rising labor costs, staffing shortages, and logistical challenges. Sherwin-Williams cut its outlook, citing materials shortages and higher-than-expected input cost inflation, exacerbated by Hurricane Ida. Margin pressures from shortages of labor and materials will be a common theme for the third quarter—and likely a quarter or two beyond.”
- Guidance is lackluster, he points out, compared to the first-half of 2021.
- The consensus EPS estimate is growing, but at a reduced rate.
As you’ve gathered from the points above, the outlook for Corporate America is still pretty good. It’s not as stellar as we saw in the first half of 2021, but there’s still plenty more good than bad.
That could well explain why the VIX is flashing “risk-on.”
***
Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com
As always, you can write to bullsheet@fortune.com or reply to this email with suggestions and feedback.
Today's reads
Is Zillow’s plunging stock price a warning about the housing market?—Fortune
U.S. crypto companies are at the crossroads of regulation—Fortune
Market candy
$861 billion
At the close of trading yesterday, that was Tesla's (approximate) market cap. A recent rally has pushed the stock up 22.5% YTD, helped by the fact it was the only carmaker to actually grow orders during this epic chips crunch. Today, the EV pioneer reports Q3 results, and Fortune's car-whiz Christiaan Hetzner details the five things investors should be watching.
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