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The reaction to multiple earnings reports this past week was a rollercoaster. Overall, the markets posted positive back-to-back weeks due to more upside than downside earnings reports and a better-than-expected January employment report. The S&P 500 Index ended the week +1.6%, the Dow was +1.1%, and the NASDAQ was +1.7%. The U.S. 10-year Treasury bond yield increased to 1.916% at Friday’s close versus 1.778% the previous week.
For the fourth quarter of 2021, 278 companies in the S&P 500 Index have reported earnings results and 78.4% have reported earnings above analyst estimates. This compares to a long-term average of 65.9% and prior four quarter average of 83.9%. The current consensus forecast is for fourth quarter earnings to grow 27.2% on 14.2% revenue growth versus an expectation of 22.4% earnings growth on 12.1% revenue growth at the start of the earnings season. During the coming week, 82 companies in the S&P 500 Index are scheduled to report earnings.
In our Dissecting Headlines section, we look at the upside surprise from the January employment report.
Financial Market Update
Dissecting Headlines: January Employment Surprise
All indications headed into the January employment report was that job growth was going to be extremely weak. The ADP employment change report for January, which was issued earlier in the week, showed a loss of 301,000 jobs. The actual Employment Report release showed a gain of 467,000 jobs. This was well above the 150,000 job growth consensus expectation.
Leisure and hospitality continued its recovery with 128,000 jobs added in January. Professional and business services added 111,000 jobs, retail added 73,400 jobs, and the government added 97,000 jobs. Wages have increased as well, +5.7% year-over-year. This compares to an average of +3% pre-pandemic. The unemployment rate did move up from 3.9% to 4.0%, but that was due to greater labor force participation.
The stronger than expected job growth supports the Federal Reserve’s announced program to end its monthly bond purchases and begin raising short-term interest rates. Concern over employment, mainly due to impacts of COVID, were the factor keeping the Federal Reserve from being more aggressive in the timing of removing the accommodative monetary policy that has been in place since the start of the pandemic in early 2020. Bond yields moved higher on the employment news. The 10-year treasury yield moved up to 1.916% on Friday from 1.836% at Thursday’s close.
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