Earnings Season Propels Soaring Stock Confidence Amid Dovish Signals

Investor’s risk sentiment rises as the stock market enters its last earnings season of 2023. The sentiment amongst investors improves as the possibility of a further rate hike in 2023 has significantly fallen. This is due to the higher bond yields, which have, in a sense, made the cost of debt more expensive, and therefore, there is a lesser need for a further hike. Thus, a less restrictive monetary policy, a robust employment sector, and the current earnings season positively influence the stock market. The main negative factor for the stock market is the high bond yields, which have risen by more than ten basis points in the past five days. 

Investors primarily focus on the British Pound within the currency market, which has released its latest employment data. The UK’s Average Earnings Index unexpectedly fell from 8.5% to 8.1%. This is the lowest reading the market has seen since July and is positive for UK stocks and the economy. However, the release harms the Pound, pointing to a softer Bank of England. As a result, the Pound is the worst-performing currency of the Asian session but has slightly retraced. The best-performing currency of the day is the US Dollar and the Euro. 

Market participants will primarily concentrate on the US stock market throughout the week due to the upcoming earnings data. As economists doubt a further interest rate hike, investors are now mainly focusing on earnings data without fear of additional contractionary monetary policy. 

NASDAQ and the US Stock Market

Up to now, earnings season has primarily influenced the Dow Jones and SNP500 due to reports coming from the banking sector. For example, UnitedHealth Group and JP Morgan confirmed higher-than-expected earnings and revenue on Friday. These two announcements primarily supported the Dow Jones. Yesterday, Charles Schwab’s quarterly report beat expectations and the stock rose 4.66%. Charles Schwab stocks are among the 100 most influential stocks within the SNP500. Today, SNP500 traders will focus mainly on Johnson & Johnson earnings data and Bank of America earnings. 

However, investors will now turn their attention to the NASDAQ due to the upcoming reports from Tesla and Netflix. Tesla is the 8th most influential stock within the NASDAQ, holding a weight of 3.16%. Analysts expect Telsa’s latest quarterly earnings data to read worse than the previous three quarters. Due to this, the stock has fallen 4.56% over the past month. However, the stock’s performance can improve if the Earnings Per Share reads higher than $0.74, and the Revenue exceeds $ 24.20 billion. Netflix is the 17th most influential stock within the index and has declined 8.50% over the past month. If earnings and revenue beat expectations, the stock’s price may rise again. If both earnings reports are better than expectations, the NASDAQ has a higher possibility of experiencing a bullish market. 

A positive factor for the NASDAQ is the positive risk sentiment that the global economy is experiencing so far. European indices, such as the DAX and CAC, are increasing in value, while US stocks mainly rise during pre-market hours. The best-performing stock within the NASDAQ was Lululemon, which rose more than 10% on Monday. The best-performing stocks with the highest percentage was Amazon, which rose 2.13%. Amazon is the third most influential stock within the index. A positive factor for the NASDAQ was that nine of the ten most influential stocks rose in value on Monday. Only Apple stocks witnessed a slight decline, falling 0.07% and a further 0.12% this morning. 

NASDAQ 30-Min Chart on October 17th

Even with yesterday’s bullish price action, a downward trend is still possible in technical analysis. The price forms a bearish “head and shoulders” pattern, indicating a downward price movement. In addition to this, the price is trading at previous resistance levels and is yet to form intraday trend-style swings. Another negative factor is order flow is showing more sellers than buyers, though this can change considering the US session is yet to open. Tonight’s speeches from Federal Open Market Committee members and earnings data will be the main influential factor. Strong buy signals will likely materialise if earnings exceed expectations and the price rises above $15,218. 

EUR/USD

The EUR/USD is trading lower this morning after witnessing solid gains the day before. The price movement is primarily driven by the US Dollar, which is increasing in value against most currencies. The US Dollar Index is trading 0.12% higher than the open price, while the Euro is experiencing a mixed performance. Technical analysis will be critical for the exchange rate and traders, as the monetary policy is less likely to change over the coming months. 

President Philadelphia Federal Reserve Bank, President Harker advises markets that the central bank will likely stop tightening despite rising employment and prices. President Harker suggests that maintaining interest rates at a stable level will continue to influence inflation, and the consumer price index for September does not yet indicate new risks of its acceleration. The head of the Federal Reserve Bank of Chicago shares a similar opinion. Due to these comments, the CME FedWatch fell to a 9% possibility of rate hikes. 

The European Central Bank is unlikely to hike despite the Fed's dovishness. Technical analysis indicates a potential downward trend. The price is trading below the 140-bar Exponential Moving Average, the latest crossover is downwards, and the price is below neutral on the RSI. However, traders will also closely watch this afternoon’s Retail Sales release. If the index is higher than expected, the exchange rate may form another bearish impulse wave.

EUR/USD 15-Minute Chart on October 17th 

Summary:

• Global stocks increase in value as US companies enter the last earnings season, and investors are less fearful of hikes. The global risk appetite rose during Tuesday’s European market open. 
• The Federal Reserve continues to seem more dovish in their comments. Due to these comments, the CME FedWatch fell to a 9% possibility of rate hikes in November.
• NASDAQ traders will focus on the upcoming quarterly earnings reports from Tesla and Netflix. Tesla and Netflix have been one of the underperforming stocks within the index. Can the latest earnings data support shareholders?
• The 140-bar EMA, crossovers and oscillators indicate a strengthening Dollar.