Executive summary:
- China announced a raft of additional stimulus measures aimed at boosting its economy
- Q3 earnings season in the U.S. is off to a positive start
- The U.S. economy continues to demonstrate resilience
On the latest edition of Market Week in Review, Chief Investment Strategist for North America, Paul Eitelman, discussed the details surrounding China’s latest stimulus announcements. He also reviewed early U.S. third-quarter earnings results as well as the latest U.S. macroeconomic data.
China unveils more stimulus
Eitelman began by noting that China’s Ministry of Finance (MoF) held a press conference on Oct. 13, where government leaders announced new stimulus measures. These included measures aimed at helping local governments refinance their debt, he said. A few days later, China’s housing minister announced that the government would provide more financing to real estate developers in an attempt to revive the country’s embattled property sector, Eitelman added.
From his vantage point, these new measures are an incremental step in the right direction as China tries to meet its 5% GDP (gross domestic product) growth target for the year. That said, Eitelman doesn’t see them as game changers, although he expects that the Chinese government will continue to unveil more toward the end of the year and into 2025. “There are signs that the pace of China stimulus is accelerating, but we haven’t seen a massive stimulus package just yet,” Eitelman remarked.
So, how are Chinese equities reacting to the latest developments? Eitelman said the lack of a large-scale stimulus package has led to a selloff, with the MSCI China Index having retraced roughly half of its September gains since the start of October.
An early peek at Q3 U.S. earnings season
Turning to third-quarter earnings season, which began Oct. 11 with some large banks reporting, Eitelman said that the news so far has been positive. Approximately 80% of companies have beat earnings expectations so far, he said, noting that consensus expectations call for earnings growth of around 5%-6% for the S&P 500. “While not as strong as what we saw during Q2, this would still be a relatively solid number,” Eitelman stated.
He said that several large banks noted an improvement in the quality of their consumer loan portfolios with, for example, net charge-off rates on credit cards declining at JP Morgan, Bank of America, and Citi in the third quarter. Eitelman said this was a positive sign about the health of the U.S. consumer.
What does the latest U.S. economic data reveal?
Eitelman concluded by reviewing the latest macroeconomic data from the U.S., including numbers pertaining to consumer spending and the labor market. He said that in another sign of consumer strength, U.S. retail sales climbed 0.4% during September—a positive surprise. Meanwhile, initial jobless claims for the week ending Oct. 12 fell to 241,000—just one week after logging their highest total of 2024, Eitelman noted.
“The decline in initial unemployment filings suggests that the recent spike in claims was largely due to disruptions from hurricanes in the southeastern U.S., rather than signaling a rapidly cooling jobs market,” he stated, emphasizing that the U.S. economy continues to look resilient.
Eitelman said that equity markets responded positively to both data points, with the Dow Jones Industrial Average logging another record close on Oct. 17, while the benchmark S&P 500 Index set a new record high on Oct. 14. Meanwhile, U.S. Treasury yields continued rising off their mid-September lows as fixed income markets shifted their expectations toward stronger economic growth in the months ahead, he said.