Stocks kicked off the new week on a high note, with all three major indexes notching solid gains Monday.
Wall Street cheered headlines out of the U.K., where newly installed finance minister Jeremy Hunt walked back major tax cuts unveiled by his predecessor, Kwasi Kwarteng, in late September. The tax cuts sparked excessive volatility across financial markets at the time they were announced – including sending the pound tumbling to a record low against the dollar.
And while today's economic calendar was relatively light, investors parsed earnings from Bank of America (BAC, +6.1%) and Bank of New York Mellon (BK, +5.1%), which both reported higher-than-expected top- and bottom-line results – continuing a trend seen in last week's big bank earnings.
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At the close, the Dow was up 1.9% at 30,186, the S&P 500 was 2.7% higher at 3,678, and the Nasdaq had gained 3.4% to 10,676.
What Q3 Earnings Say About the Economy
Today's corporate updates showed more silver linings in what's expected to be a brutal Q3 earnings season. While the earnings calendar only bulks up from here – with big bank Goldman Sachs (GS), pharmaceutical giant Johnson & Johnson (JNJ) and streaming giant Netflix (NFLX) among those reporting tomorrow – there have been signs of strength in a handful of names that have already reported.
"While the pundits are mostly focused on what can go wrong this earnings season, there are several reasons to expect the numbers for this quarter to be decent," says Jeffrey Buchbinder, chief equity strategist at independent broker-dealer LPL Financial. For one, "companies typically generate about three percentage points of upside, even in challenging profit environments, as they bring expectations down low enough to beat them."
Plus, economic activity likely picked up in Q3, which will be beneficial to companies, and "generating earnings growth in a tough economic environment is a little easier when inflation is the source of the weakness," Buchbinder adds. In other words, higher prices means more revenue. So what can Q3 earnings tell us about the economy as a whole? A few, like Domino's Pizza (DPZ) and Delta Air Lines (DAL) are offering hints.
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