Economic Beat: S&P 500 earnings season continued in full swing last week
How will current market developments affect you? The thought leaders at Fifth Third Bank can help make sense of it all. Listen to the Economic Beat as they discuss what happened last week and what they expect will be the focus of this week.
Economic Beat: February 7, 2022
Financial markets closed higher after another volatile week, which consisted of important payroll numbers and key earnings releases. Positive narratives continued to revolve around still easy financial conditions, strong equity inflows, robust corporate buybacks, pristine consumer balance sheets, a solid demand backdrop, declining Omicron cases, and labor market strength. Listen to this week’s full Economic Beat update or read the transcript below.
Hello, this is Tom Jalics, Chief Market Strategist at Fifth Third Bank
Financial markets closed higher after another volatile week, which consisted of important payroll numbers and key earnings releases. The major U.S. benchmarks all rose as Omicron variant concerns continued to ease and dip-buyers returned after the poor first month of the year. The S&P 500 index rose 1.6%, ending its best week of the 2022. The Nasdaq 100 had a strong week, rising 2.4%, and the Dow Jones Industrial Average gained 1.1%. The U.S. 10-year Treasury yield rose 14 basis points in the week to end 1.91%. Yields internationally followed suit as the 5-year German Bund yield rose above zero for the first time in three years and the Japanese 5-year government yield rose to 0.0% for the first time since 2016. Oil surged as West Texas Intermediate Crude ended the week just shy of $92 a barrel, up 5.9%. Gold was up 0.9% for the week ending at $1,807/barrel.
US equities were mostly higher for a second straight week after finishing lower over the first three weeks of 2022. Positive narratives continued to revolve around still easy financial conditions, strong equity inflows, robust corporate buybacks, pristine consumer balance sheets, a solid demand backdrop, declining Omicron cases, and labor market strength. Last week’s U.S. jobs report showed that payrolls in the U.S. rose by 467,000 in January, shocking investors as expectations were for a slow-down due to the surge in COVID-19 Omicron cases. The unemployment rate rose slightly to 4.0%, up from 3.9%, driven by an improvement in the labor force participation rate. Average hourly earnings jumped to 5.7% year-over-year, furthering the argument surrounding wage price inflation. Jobless claims in the U.S. fell for the week ended January 29. Initial applications for unemployment benefits dipped to 238,000, less than the prior week's revised 261,000. Continuing claims slid to 1.628 million, less than the revised 1.672 million previously. n total, last week’s labor reports continue to point to a positive environment for consumer spending and economic growth.
S&P 500 earnings season continued in full swing last week. According to FactSet's latest Earnings Insight report, with 56% of S&P 500 companies having now reported Q4 results, the blended growth rate stands at 29.2%, up from 21.7% at the start of earnings season. Just over 76% of reporters have surpassed consensus earnings-per-share expectations, well below the 84% four-quarter average, and slightly below the five-year average. In aggregate, companies have reported earnings 8.2% above expectations; also well below the four-quarter average surprise rate of 15.7%. The softer beat rates have played into concerns about peak margins. While companies have continued to highlight a favorable demand backdrop, supply chain and input price pressures are expected to persist over the next few quarters.
In the week ahead, investors will turn their focus to geopolitics, a bevy of domestic economic releases, and a continuation of earnings season. President Biden will host German Chancellor Olaf Scholz on Monday to discuss the turmoil between Russia and Ukraine. Berlin has rejected sending weapons to Kyiv and is hoping for an exemption for the energy sector in Europe if there is action taken to block Russian banks from clearing U.S. dollar denominated transactions. The inflation gauge will be watched closely as investors expect the red-hot figure to set the stage for a likely Federal Reserve rate hike at its March meeting. Additional domestic economic releases include NFIB Small Business Optimism, Wholesale Inventories, and the University of Michigan Sentiment Index. Finally, fourth quarter 2021 earnings season continues this week with Twitter, Uber, Disney all expected to report.
As always, we will be watching and reporting to you next week. Thank you.