Michael Reinking:
Good morning. I'm Michael Reinking, senior market strategist at the New York Stock Exchange, and you are listening to the Market Storylines podcast on the Inside the Icehouse podcast feed. As we record on Thursday afternoon, let's get to this week's market storylines.
This week equity markets have continued to move higher as earnings season has officially gotten underway. A few weeks back we talked about the pain trade being to the upside as the investment community was uniformly calling for volatility heading into the election, pointing to the seasonally weak months of September and October, and that squeeze seems to be playing out. The S&P 500 closed higher in the month of September for the first time since 2019, and that has continued at the start of Q4. Assuming we hold onto this week's gains, the S&P 500 will have closed higher in nine of the past 10 weeks since the volatility flare up at the start of August, up about 10% over that timeframe.
Now the macro backdrop has been the primary driver of those gains. The monetary policy is easing around the globe with the Federal Reserve aggressively beginning its cutting cycle. This has helped ease economic growth concerns, along with a solid round of economic data pointing to a resilient backdrop. That included a strong jobs report a couple weeks back and a solid retail sales report earlier this morning. Global growth concerns have also moderated as China has embarked on a big round of stimulus.
From here, at least for the next few weeks, the focus will shift away from the macro to the micro as earnings season officially got underway late last week. Now financials dominate the early days of earnings season, and given their unique perspective of the economy, those conference calls tend to get some extra attention. The results thus far have been very solid with JP Morgan and Wells Fargo kicking off a rally that began last Friday.
Over the last week, the sector is the best performing in the S&P 500 with the XLF, the ETF that tracks that sector clearly breaking out of a multi-week consolidation pattern, hitting new all-time highs up nearly 5%. Now, from a macro perspective, those reports continue to point to a resilient consumer, which was also confirmed by this morning's strong retail sales report. The lower-income cohort has been impacted, but banks are not highlighting big red flags about credit quality deterioration. Investment banking, capital markets and trading results have all been positive with optimism building for that to continue post-election.
Our asset management and fee-based businesses have also been very strong given the backdrop. And with the Fed's easing cycle underway and the steepening of the yield curve, a big area of focus for investors has been on net interest income. Now, the numbers across the industry have been mostly positive with multiple management teams suggesting a trough sometime in 2025. Now, there has been some improvement on loan growth, but overall, the demand remains tepid. Broadly speaking, the industry has done a very good job at controlling expenses, which has been key in helping support the bottom line.
Given in its early days in the reporting cycle, there isn't critical mass to draw conclusions across other sectors at this point. In some cases, we've seen opposing reports none more paramount than the semiconductor sector this week. On Tuesday, European semi-equipment company ASML accidentally released earnings early with bookings coming in at half of Street estimates with the company cutting guidance. Now, the management team continued to highlight strong AI demand, but did point to a slower than expected recovery in other markets.
Consumer electronics is one of those markets, and once again, looking back at this morning's retail sales report, sales at electronics and appliance stores were down 3.3% last month, one of only three categories that fell. Now, ASML's earnings happened to come on the same morning of a media report suggesting that the administration was considering additional restrictions on AI related chip exports adding to the weakness in the sector. However, last night, Taiwan Semiconductor released strong numbers beating on revenues and gross margins, which has the stock up over 10% today and is helping the sector recoup about half of Tuesday's losses.
There have been a couple of other notable themes. Healthcare insurance stocks have been under pressure after a couple of companies have highlighted higher medical cost ratios, which are impacting profitability, and there have been some mixed reports within the transportation sector. Airlines have traded very well following their results. However, railroad companies are trading lower after an earnings miss from CSX.
The pace of earnings are just starting to pick up. Before the week is out, there are still a couple of impactful reports. Thursday night we have Netflix and then Friday morning American Express and Procter & Gamble, which will both provide some more insight into the consumer. Now, Allied Financial will also be in focus. The company is highly exposed to auto lending and has recently pointed out some deterioration in the credit environment.
Now, as we look forward to next week, over 20% of companies in the S&P 500 are set to report across a wide range of industries, which will drive the market action next week. Now, keep in mind this Friday is options expiration, which can drive some additional volatility. Now next week outside of earnings, the economic data will include the Fed's Beige Book, breaking down regional economic activity, and the Global Flash PMIs. That's going to do it for today. Hopefully, we're celebrating a Subway series this time next week. Once again, thank you for spending some time with us. Remember to tune in every Friday to the Market Storylines Podcast on the inside the Ice House Podcast feed, and remember to rate and review. Thank you for listening. I'm Michael Reinking. I'll talk to you again next week.
Speaker 2:
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