Stocks Rally Hard on Earnings Strength: What Wall Street's Saying

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Stocks rose in a convincing rally Thursday, as economic and earnings momentum showed itself. Question marks over the speed of the economic recovery remain, but investors are generally confident in the earnings recovery for the medium-term.

The S&P 500 rose 0.52% on the strength of a collective effort across sectors. The tech-heavy Nasdaq only rose 0.19%. The 10-Year Treasury yield surged to 0.86% from 0.82%. It was at 0.71% about a week ago. Yields rise when prices fall. Bank stocks rose several percentage points on the aggressively expanding yield curve.

Coca-Cola  (KO) - Get Report beat revenue and earnings estimates, posting revenue of a touch more than $8 billion for the quarter, a few hundred million dollars higher than analyst’s estimates. Revenue declines are improving to single digits in percentage terms year-over-year, as restaurant and sports-related sales take a pandemic-induced dive. The stock rose 1.34%.

Tesla  (TSLA) - Get Report shares rose a slightly after an impressive earnings beat. Revenue was $8.8 billion against estimates of $8.3 billion and the company is positioned to deliver a total of 500,000 vehicles this year and to grow that number aggressively net year. The stock rose as much as 4%, before the gain moderated to 0.75%.

Southwest Airlines  (LUV) - Get Report beat revenue estimates and posted a narrower net loss than expected. Revenue was $1.8 billion, beating analysts estimates by a few hundred million dollars. Looking ahead, management said, “The company continues to experience modest improvements in close-in leisure passenger demand in October and bookings for November. The company expects a November revenue decline of 60% to 65% year-over-year, versus October’s decline of between 65%-70%. The stock rose 5.21%. Demand is improving, albeit slowly.

Industrials rose as a result of Southwest’s earnings report. Boeing  (BA) - Get Report rose 3.19%. General Electric  (GE) - Get Report, a Boeing supplier, rose 5.60%. The average large cap industrial rose about 1%.

Analysts initially expected earnings declines on the S&P 500 of roughly 20%, but that may come in better-than expected, pointing towards a 2021 campaign of strong earnings growth off of an easy comparable in

Another positive: initial jobless claims for the past week were 787,000 against estimates 860,000 and lower than last week’s reading of 842,000. This speaks to an apparent improvement in the labor market and may quell anxieties that the slowing economic recovery can resume its previous pace.

Fiscal stimulus has been an important piece to the strength of the consumer, which, according to data from several strategists, is hoarding cash as confidence is low. This means without fiscal stimulus, the consumer may be positioned well into 2021. A coronavirus vaccine would be nice in order for small businesses to open up fully and resume hiring.

Wall Street is encouraged by the backward-looking momentum it sees, but is watchful of the continued progress. The S&P 500 is down a tick since October 14.

Here’s what Wall Street’s saying:

Don McCree, Head, Commercial Banking, Citizens to TheStreet:

“We’re seeing certain sectors of the economy doing reasonably well. The liquidity situation in the market is still pretty good. New money demand is pretty tepid. There are not a lot of companies out there building plant. That says to me that the economy has got a ways to go. We are seeing a little bit more M&A activity, some of which will be loan-financed."

Tony Dwyer, Chief Market Strategist, Canaccord Genuity:

"Excess liquidity coupled with a synchronized global recovery continues to be the driver. While the broad equity markets have been all over the place in recent days/ weeks due to the back and forth of fiscal package uncertainty, the other markets have seen a fairly consistent trend: a weak U.S. Dollar, weak U.S. Treasury bonds, steepening U.S. Treasury Yield Curve, higher commodities, and relative improvement in small cap, emerging and economically sensitive sectors."

Mark Haefele, Chief Investment Officer, Global Wealth Management, UBS:

"Focus on medium-term upside potential. Given the ebb and flow of the news headlines, we expect markets to remain more volatile than normal, notably into the US election. But, in our view, investors should look through the uncertainty to build long-term equity exposure.”

Steven Ricchiuto, Chief U.S. Economist, Mizuho Securities:

"The data points released this morning clearly show that the economy and labor market are on a more solid growth trajectory than the financial press seems to believe. The biggest disconnect is emphasized by the latest weekly claims and continuing claims data. Heading into this morning’s release, the markets had been told to expect clear signs the labor market recovery has stalled. Instead, the data points strongly suggest that, barring a Census-related drag on the upcoming payroll employment, the recovery in employment continued right though the current month."

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