Last week’s 5% stock market rally, as measured by the S&P 500, was driven primarily by a positive start to the third quarter earnings season. While we cautioned last week about drawing conclusions on third quarter results too early, we can’t help but note that a number of companies gave us just what we were looking for by posting better than expected sequential revenue growth and a high 74% of companies are beating expectations.
We had expected a renewed rally to begin last week after stocks have been in a range of 1025 to 1075 on the S&P 500 for the past month. We raised our recommended stock weighting just prior to last week as the earnings reporting season was about to get underway. During the past two quarters, the stock market moved sideways in the two weeks prior to the start of the earnings season then rallied as the reports came in. This pattern appears to be unfolding again this season.
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