Market snapshot: dominant themes emerging this results season

Although only a handful of stocks have reported so far in this quarterly earnings season, two dominant themes are already beginning to emerge.

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The first is that despite any consumer confidence concerns, the US economy is in good shape. The banks have reported less provisions and bad debts, and in any event are largely insulated due to their cash generative and capital cushion positions.

The next test follows later today with the release of the Consumer Price Index, where a 0.6% rise month on month is expected, up from 0.4% in August, with inflation annualised to 3.6% from the previous 3.4% largely due to higher energy prices. However, if the reading were much hotter than expected, it would throw doubt on the current 80% consensus that the Federal Reserve will leave interest rates unchanged later this month.

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Secondly, the sheer weight of expectations is such that companies will need exceptional numbers to move their share price dial. While the likes of JPMorgan Chase & Co (NYSE:JPM) and The Goldman Sachs Group Inc (NYSE:GS) were slightly shy of Fixed Income, Currencies and Commodities (FICC) trading, this was more than offset by large beats on the equity trading side. 

JP Morgan stock finished marginally lower after its price swung between gains and losses, even though it raised net income guidance for the year. Goldman Sachs also inched lower, with investors apparently ignoring its revenue beat and investment banking fees outperformance.

Meanwhile, scrutiny of AI stocks continues to intensify. In the previous session the South Korean Kospi index had fallen by almost 6% which dampened the mood among US investors. This followed the latest development whereby China’s CXMT said that it was planning to release a more powerful – and potentially cheaper – chip before the end of the year. Quite apart from Chinese competition, and despite the fact that demand is clearly far from being satisfied, concentration risks and rising costs are leading to escalating concerns about the return on capital increasingly required to justify the estimated $800 billion (£603 billion) of investment spend in this year alone.

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Investors are also grappling with the inflationary impact of the oil price, which is refusing to cede its above $100 per barrel status despite increasing reports that the flow of oil through the Strait of Hormuz is now similar to pre-conflict levels. Even so, the lack of any lasting agreement in the region, which the US President has already said will not come before the imminent midterm elections, is exacerbated by continuing attacks on Saudi Arabia by Yemen's Iran-allied Houthis and apparently fresh tactics planned by the Iranians to target ships on the Strait.

The combined plates which investors are having to spin led the main indices to limp to a weaker close, after a session which had seen the Dow Jones notably stronger at one point before surrendering these gains. Even so, the index remains ahead by 7.5% this year and the more tech-focused S&P500 and Nasdaq by 14% and 17% respectively. Nor do the concerns seem to have filtered out elsewhere, with gains of 11% in the year to date for both the S&P500 equal weight and the Russell 2000 indices.

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Mixed trading in Asia overnight following the weaker Wall Street finish apparently gave the FTSE100 little room for manoeuvre at the open, as the index struggled to make any meaningful headway. Reportedly robust overseas demand and growth in China lifted Burberry Group (LSE:BRBY) shares as the group continues a turnaround plan which has yet to fully ignite investor interest, let alone the wider pressure currently being experienced by the luxury goods sector.

Elsewhere there were limited features of note, although Whitbread (LSE:WTB) shares added more than 1% after its pleasing interim results yesterday led to a broker upgrade overnight. The fragile gain for the premier index leaves the FTSE100 ahead by 7.4% in the year so far, while the FTSE250 has gained 8.6% amid heightened Merger & Acquisition activity and a relatively positive IMF report yesterday on the UK economy which helped improve investor sentiment.