Major stock indexes extended a stunning October rally on Friday after tech giants Apple and Intel broke a streak of dismal third-quarter earnings reports with results that shattered expectations, but analysts aren’t convinced the respite will be long-lived, as the Federal Reserve’s ongoing tightening campaign threatens to slow the economy down through at least next year.
The Dow Jones Industrial Average soared 828 points, or 2.6%, to 32,861 Friday—extending the index’s best October run ever, up 14%—while the S&P 500 and tech-heavy Nasdaq climbed about 2.5% and 2.9%, respectively.
Heading up gains in the Dow, shares of tech giants Intel and Apple soared 11% and 8% apiece after reporting earnings Thursday evening that beat Wall Street expectations, with investors lauding Intel’s efforts to cut costs by $3 billion next year and as much as $10 billion by 2025 to defend against “worsening economic conditions.”
Other mega-cap companies rallying Friday included oil giant ExxonMobil, which jumped 2.7% after reporting a record-breaking quarterly profit of $19.7 billion thanks largely to skyrocketing natural gas prices and “rigorous” cost cuts.
The positive earnings helped improve sentiment after a rash of disappointing results from technology companies this week pulled shares of Alphabet, Amazon and Meta down 6%, 13% and 24%, but analysts aren’t quite convinced the resilient earnings will be long-lived.
“Earnings are holding up, but risks are building,” says Bank of America’s Savita Subramanian, warning more companies will cut their earnings guidance in the weeks ahead as economic momentum continues to slow—particularly since some of the weaker sectors this year (such as consumer discretionary firms like Disney) aren’t slated to report earnings until mid-November.
Stocks tend to get a modest bounce the day and month after midterm elections—with the S&P climbing an average 1.2% in the month after and stocks climbing higher about 75% of the time, according to research firm DataTrek. However, BlackRock analysts in a recent note said they aren’t so bullish about this year. “We see a bigger problem for stocks than any potential positives from the midterm election outcome: a looming recession,” a team led by Wei Li wrote. They argue the Federal Reserve won’t stop hiking until “after the economic damage of rate rises is clear,” and that a recession will extend beyond the housing market “in time.”
What To Watch For
In the event the economy falls into a recession, Goldman projects the S&P could plunge another 13% to 3,400 points by the end of the year and 19% to 3,150 over the next six months—taking a full year to recover its losses.