Stocks rose in a quiet session, but earnings are still in focus.

The equity market continues its ascend on Monday as it remains strong, opening into November. Bond yields have stabilised, although they did rise sharply on Monday as Friday’s job report confirms a cooling labour market. This increases the odds that the Federal Reserve does not need to raise interest rates higher in the December FOMC.

This week is pretty much muted, given a lack of economic data. However, we have to take note of Uncle Powell’s speech on Thursday.

Oil prices climbed after Russia and Saudi Arabia, two major oil exporters, maintained voluntary production cuts until the end of 2023.

Robust performance thus far, with volatility calming

The Greed and Fear gauge returns to the calm side of the equation, but beneath this sea of robust earnings are large swings, especially among small and medium-cap stocks. And that could signal that market turbulence could return soon.

The S&P 500 had risen by 5.9% last week, which is the best week ever since November 2022. Consistent with this upbeat performance is the drop in VIX, a barometer of S&P 500 volatility, which dropped to 14.9 from a peak of about 22 in October. This reflects a sudden and brief panic that soon evaporated when risk-on sentiment entered traders’ blood.

Earnings still hint at potential cracks for investors to be mindful

Individual stocks have been seeing more significant swings than what major indices are suggesting. Take the example of Palantir Technologies, Shopify and Roku, which had gained more than 20% after their earnings release. On the contrary, poor performance from companies such as Paycom Software and Estee Lauder sent stocks plunging massively.

What have we observed?

The market tends to punish poor earnings more than celebrating or rewarding good performance. Based on Evercore ISI data, on average, when companies beat earnings and sales estimates, they tend to rise 0.3%. The flip side is when they missed on both fronts, the stock prices, on average, collapsed by 4.8%. This 5.1% gap has, in some articles, been stated to be larger than the historical average of 4.1%.

So beneath massive optimism is also an undercurrent of volatility that we must be careful of as investors are now baking in tremendous upside on earnings growth and margin expansion moving into 2024. Any disappointment could reverse the tide, too.

It is 7 Nov, Tuesday, 9 am in Singapore and 9 pm in New York. We wish all friends a spectacular trading week ahead.