The “Wall of Worry” is being climbed once again as US stock markets made fresh all-time highs overnight. Both the S&P500 and the Dow broke into new territory, while it was tech shares and consumer discretionary stocks that led the way, with the Nasdaq now a whisker away from a new top.

The S&P500 has gained more than 20% so far this year and has hit new record highs in all ten months so far this year, which is the most since 2017. That means we are still on track to equal 2014 when the index posted record highs in each month of the year.

Earnings growth booster

Positive corporate earnings are offering a tailwind to global markets with Asian and European markets generally in the green this morning. US earnings growth in the third quarter will likely be strong, possibly hitting up to 40%. While this is excellent, we note it’s some way off the 90% increase in earnings in the second quarter.

Electric vehicle battery manufacturers surged after car rental giant Hertz announced it would order 100,000 vehicles from Tesla by the end of 2022. The Elon Musk-led carmaker shares closed higher by 12.6% and through $1,000 at a record high, with a $1 trillion market cap.

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Tech titans results in focus

US stock futures are modestly higher as investors await a fresh round of major technology earnings. Facebook reported disappointing revenue and monthly active users overnight, but the shares are up 1.8% in after hours trading. Tech behemoths Alphabet and Microsoft are due to report after the bell tonight, as well as Twitter and Robinhood. Europe will also be reacting to a busy day of results with consumer bellwether Reckitt Benckiser releasing results after today’s session.

Investors are still assessing concerns about above-trend inflation and below-trend economic growth, which have spurred fears of monetary policy errors and stagflation. But with sales and earnings positively surprising in nearly every sector, it looks like high prices may potentially be passed onto the consumer.

Dollar holding support

Rising consumer prices will of course grab the attention of the Fed as we head into the FOMC meeting next week. This comes after Chair Powell’s recent comments in which he stated that supply shortages “are likely to last longer than previously expected”.

The rally in the greenback has stalled over the last few weeks but the DXY has found support around 93.50. The worst performers in the G10 space have been the euro and yen whose dovish central banks meet later this week. If they continue to highlight the divergence between policymakers, then the DXY should push out of its recent consolidation towards 94. Multi-month highs sit at 94.56 with EUR/USD lows at 1.1524.

 

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