US indices rally on strong corporate earnings

Summary:

• Strong corporate earnings lift US equities at the beginning of the final trading session of the week

• Nasdaq (US100) stocks outperform after days of underperformance

• Disappointing US data barely impacts valuations

Major stock market indices from Wall Street marched higher on Friday after getting boost from strong corporate earnings and signs of easing trade tensions between China and the US. Namely, reports surfaced saying that the Chinese President Xi Jinping and the US President Donald Trump agreed to meet during the G20 meeting in November. The meeting is viewed as an opportunity to cool the trade spat between two countries. The meeting is said to occur on 29 November.

Data from the US housing market continues to disappoint. Source: Macrobond, XTB Research

The existing home sales data was released earlier today. It was another piece of data from the US housing market after building permits and home starts that was released this week and disappointed. Existing home sales were expected to reach 5.29 m in September marking a 0.9% MoM drop. However, the actual data showed 5.15 m and 3.4% MoM drop. The release did not impact valuations of the US assets significantly but one should keep in mind that in case we continue to see weaker readings from the US housing market questions may be raised.

US500 halted yesterday’s sell-off at 200-session moving average (purple line on the chart above). Note that this technical hurdle managed to fend off bulls a few times earlier this year therefore it should be closely watched by investors in case sellers return to the market. The index is trying to climb back above the 2800 pts handle at press time. Source: xStation5

Nasdaq (US100) is a top performing US equity index today. Out of 103 stocks included in the index just 15 trade below their yesterday’s closing prices at press time. PayPal is the leader after the release of the earnings report while eBay is the top laggard following downbeat analyst action.

S&P 500 (US500) is the second best performing US equity index. Companies producing household and personal products are the best industry group thanks to stellar earnings of Procter & Gamble. On the other hand, consumer durables producers are the worst performing industry group. Dow Jones is also producing decent gains but lags the other two indices. VIX (VOLX) retreated to 18.50 pts handle

S&P 500 performance breakdown by industry groups. Source: Bloomberg

Company News

PayPal Holdings (PYPL.US) is the best performing stock from S&P 500 and Nasdaq indices today. The company submitted its earnings report yesterday after market close. The EPS ratio reached $0.58 on the adjusted basis with median estimate pointing at $0.541. Revenue was expected to come in at $3.667 billion while the actual data showed a minor beat with $3.683 billion. Additionally the company raised its whole year forecast and issued a guidance for 2019 that was in line with its long term targets. However, investors were especially pleased by Venmo developments. Venmo is a mobile payment service owned by PayPal. The company managed to reverse trend of accelerating losses in the venue and is making progress towards monetizing Venmo.

Procter & Gamble (PG.US) is another company that released its earnings report today and  managed to beat expectations. In turn the stock is leader among Dow Jones companies. While revenue rose by just 0.2% YoY from $16.653 billion to $16.690 billion an interesting development was spotted in the organic sales, a sales measure that excludes effects of acquisitions and exchange rate fluctuations. Organic sales rose 4% YoY easily beating estimates of 2% YoY growth. It was the biggest increase in this measure in the past five years. Net income reached $3.2 billion in the second quarter against expected $2.845 billion. All of the above combined produced the biggest one-day gain for the stock in a decade. Procter & Gamble is trading more than 7% higher on the day.