S&P 500 hits fourth consecutive record close, Dow Jones hits 36,000 level

• All three major US indices posted record closes on Tuesday, the fourth in a row for the S&P 500.
• Strong earnings are being cited as the main factor underpinning the ongoing rally.

It was another joyous day for the US equity markets, with the top three exchanges achieving new record closing levels; the S&P 500 gained 0.4% to close above 4,630, the Dow rose by the same amount to close above the 36,000 level for the first time, while the Nasdaq 100 beat pre-market losses to also record 0.4% in gain. daily, although the index fell slightly below. For the S&P 500, Tuesday’s close was the fourth consecutive close of consecutive all-time highs. Equity analysts continue to attribute the ongoing rally (the S&P 500 is up more than 8.0% from lows in early October) to the strong third-quarter earnings season.

Profits

Shares of US pharmaceutical giant Pfizer rose more than 4.0% on Tuesday after the company revealed in its third-quarter earnings report that vaccine sales in 2021 were expected to exceed $ 36 billion. More than 60% of the 320 S&P 500 companies that reported third-quarter earnings so far have beat analyst forecasts and, according to Reuters, total earnings for S&P 500 companies are now expected to have risen more than 40%. compared to the third quarter of 2020.

There was a particular focus on the Dow Jones Transportation Average Index, which rose to new all-time highs (and is up 25% from September lows) amid a 180% rise in the rental company’s share price. / Avis Budget Groups car sharing after strong earnings report. Avis (ticker CAR) shares appear to have joined the “meme stocks” category for the day, and it was one of the most trending stocks on stocktwits.com, Reuters reported.

Stocks soar despite central bank turnaround and inflation risks

Strong gains have underpinned US equity markets in recent weeks despite a clear revaluation of expectations of interest rate hikes in 2022 (or earlier) from most of the major G10 central banks. , which has largely been driven by a sharp rise in inflation due to higher energy prices and more evidence that it could take some time for inflationary supply chain disruptions and shortages to subside. The fact that major G10 central banks, such as the Fed and the Bank of England, are expected to keep long-term interest rates at record lows (that is, they are expected to rise one or two percent, but not regress to pre-crisis levels of 4-5% or higher) appears to be a factor helping equity investors keep their cool at the beginning of a synchronized global escalation cycle, while the notion that companies They are largely able to pass higher input costs onto price-insensitive consumers (a topic alluded to in recent business surveys and earnings), while maintaining high margins on others.

Equity investors can test their tolerance for the ongoing sea change in global central bank policy this week, as the Fed announces the policy on Wednesday (they will likely announce plans to cut QE purchases by $ 15 billion). dollars per month) and the BoE announces the policy. on Thursday (if they want to avoid a blow to their credibility, they should implement a rate hike of 15 basis points). Otherwise, US data in the form of the October ISM Services PMI survey and the October labor market report should show that US economic growth remains strong in the first month of the month. fourth quarter, if not hampered a bit by supply chain issues and labor shortages.