Perspective :

Market Commentary | Oct 27, 2021

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'Tis the season for earnings

As of yesterday, October 26th, about 26% of S&P 500® companies had reported actual results for the third quarter. Of these, around 85% are beating earnings estimates and 87% on sales estimates, according to data from S&P. Overall, revenue per share is expected to fall slightly from the second quarter, which seems to corroborate some of the more pessimistic U.S. GDP (Gross Domestic Product) estimates for the quarter (we’ll get a first look at 3Q GDP on Thursday). Likewise, margins are expected to decline a bit from 13.5% in the second quarter to about 12.9%, and there are myriad reasons to assume that this is just the beginning of a downward trend in margins. A recent survey by Gartner indicates that CFO’s are citing multiple sources of input price inflation.

Prices Chart

Further, as reported by the NY Times DealBook, comments about continued supply chain issues are now quite common on earnings calls.

  • G.E.: “We’re feeling the impact of supply-chain disruptions in many of our businesses, with the largest impact to date in health care,” said Larry Culp, the conglomerate’s CEO.
  • Sherwin-Williams: The availability and cost of raw materials led the paint company to report a 30 percent drop in quarterly profit from a year ago.
  • Hasbro: “Our airfreight expense was much higher in the third quarter than it typically is, and we do expect it to be higher in the fourth quarter,” said Deborah Thomas, the toy maker’s CFO.

Sticking with the supply chain and inflationary theme, with energy prices surging over the past year, the rig count, according to Baker Hughes, has increased substantially, but on a price-to-rig-count basis, we are still near an all-time high. Because financing has become increasingly difficult for oil and gas companies, coupled with the haunting memory of the collapse of oil prices in the spring of 2020, producers seem to have been slower to ramp up production as prices have risen.


Last Count
Change from
Prior Count
Date of Prior Count
Change from Last Year
Date of Last Year’s Count
U.S. 22 Oct 2021 542 -1 15 Oct 2021 +255 23 Oct 2020
Canada 22 Oct 2021 164 -4 15 Oct 2021 +81 23 Oct 2020
International Sep 2021 787 +10 Aug 2021 +85 Sep 2020
Source: Baker Hughes

“Certified Mad” seems to be an apt descriptor of the current situation. The list of worries just keeps growing and yet the VIX (Chicago Board Options Exchange Volatility Index) recently hit its lowest point since the pandemic began.

CBOE Volatility Index: VIX

The end of the month rapidly approaches and the scorecard through October 26th has REITs (+8% ish) and large growth stocks (approx. +7%) in the lead, with commodities posting a respectable 4.9% return month-to-date. Bonds on the other hand have mostly been under pressure. I say “mostly” because while investment grade and high yield corporates, municipals, mortgage-backed securities, and Treasuries ranging from 1-3 year out to 7-20 year are all down for the month, long term Treasuries are up 63 basis points (bps). Only Alfred E. Newman could fully appreciate this market.

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