By Louis Navellier
In the first half of October, the S&P 500 was basically flat, while the NASDAQ is off 2.7% and the Dow is up 2.1%, but the second half of October is historically stronger than the first half of the month, especially in midterm election years, so the traditional fourth-quarter year-end rally could start at any time.
One by one, third-quarter earnings reports are starting to drive selected stocks higher. A lot of market pundits think stocks are “priced for perfection,” but I remain confident that when this announcement season winds down, S&P 500 earnings will be up by at least 33%, year-over-year, and our fundamentally superior stocks could top 100% earnings growth, so I have very high expectations for a year-end rally.
Last week, financial stocks started earnings season by announcing their third-quarter results. J.P. Morgan missed analyst estimates, but other large banks posted strong results. Since bank loan loss reserves will be closely scrutinized for possible higher reserve increases for consumer defaults, it’s good news that Wells Fargo reported lower loan losses than expected – a positive sign that consumer default risks remain low.
Here are the most important developments recently and what they mean:
– SpaceX (SPCX) and Tesla (TSLA) will announce their latest quarterly results after the close and in the afterglow of the Roadster flying car, investors are expected to focus on earnings, operating margins, and guidance. The analyst community is expecting SpaceX to make a transition from negative to positive operating results. Specifically, the analyst community is expecting SpaceX to post positive earnings of 16 cents per share and be profitable in its upcoming quarters. As a result, SpaceX’s guidance will be crucial.
– Tesla is forecasted by the analyst community to have a minuscule sales increase, but due to high gasoline prices, the third-quarter sales may surprise. The analyst community is forecasting that Tesla’s third-quarter earnings will be 26 cents per share. It is important to note that Tesla has missed analyst earnings estimates for the past four quarters due to operating margin compression as well as the ramp-up of Optimus robots. As a result, it is imperative that Tesla provide upbeat guidance regarding sales, operating margins, and signal when it expects Optimus robots to be profitable. I suspect that the Optimus details will remain a mystery, so do not be surprised if Tesla consolidates in the upcoming days, even if it provides upbeat guidance.
– In the meantime, France is in shock after an estimated 550,000 protesters nationwide burned and looted a once proud country. French President Emmanuel Macron has expressed “anger” and “shame” over “insurrection elements from radical groups, joined by numerous criminals.” Marine Le Pen’s National Party is expected to sweep the upcoming elections in France, since such social unrest has become intolerable. Curfews have been imposed in major French cities, but obviously that is just a Band-Aid that will not solve France’s social unrest.
– Speaking of burning, a defiant Ukrainian President Zelensky has resumed attacking Russian refineries and energy storage facilities from St. Petersburg to Siberia. On Meet the Press, Zelensky expressed his frustration that Starlink curtailed the internet speed, which effectively impedes its drones that rely on Starlink for navigation. Ukraine’s armed forces rely on a secure, militarized version of Starlink called Starshield. President Trump said Ukraine is targeting Russian diesel refineries “knowing that these attacks are seriously hurting the world diesel markets, including those in the United States.” Trump said that Russia, conversely, was “sending, at a low price, millions of barrels of diesel to the world.”
– The alliance to support Ukraine’s offensive attacks on Russia is now fractured. Although European allies largely back Zelensky, there is a tremendous concern that the next step will be the U.S. withdrawing support for Ukraine and NATO fracturing. This means that the upcoming G20 meeting at Doral, Florida, will be more tense than normal. President Trump has disinvited South Africa and invited Russia. Obviously, President Trump is striving to force a peace agreement between Russia and Ukraine before the G20 meeting. However, since Putin and Zelensky hate each other, this is obviously becoming a formidable task.
– Alberta voted overwhelmingly to remain in Canada, so its secession movement had ended. This is a major victory for Prime Minister Mark Carney, who was raised in Edmonton. Premier Danielle Smith is being blamed for putting the secession decision to a vote to circumvent the courts. Alberta remains Canada’s most profitable province due to high crude oil prices and will have to continue to subsidize other provinces, which was one of the catalysts behind the secession movement.
Overall, I am anticipating wave after wave of earnings estimate announcements this week, and better-than-expected results are expected to propel the stock market dramatically higher. I am expecting 33% average third-quarter earnings growth for the S&P 500. It is literally impossible to be bearish in the midst of such stunning earnings announcements, so please enjoy the ride.
