U.S. equities are beginning the new week sharply higher, getting a boost from the U.K.'s decision to abandon nearly all its tax cut plans. The moves come amid hopes of some stabilization in the global bond and currency markets which have seen increased volatility in the wake of the initial proposal. Treasury yields are lower, and the dollar is declining amid strength in both the British pound and the euro. Crude oil prices are seeing modest gains, and gold is trading solidly to the upside. Bank of America eclipsed quarterly expectations on a jump in net interest income, while Q3 earnings season is set to kick into a higher gear this week. The economic calendar is light but showed manufacturing activity in the New York region slowed more than expected. Markets in Asia finished mixed amid continued recession worries, while stocks in Europe are cheering the U.K. tax cut decision.
At 10:50 a.m. ET, the Dow Jones Industrial Average is jumping 1.8%, the S&P 500 Index is rallying 2.7%, and the Nasdaq Composite is soaring 3.3%. WTI crude oil is rising $0.57 to $86.20 per barrel, and Brent crude oil is increasing $0.55 at $92.18 per barrel. The gold spot price is trading $18.80 higher to $1,667.70 per ounce, and the Dollar Index is down 0.8% to 112.47.
Bank of America Corp. (BAC $33) reported adjusted Q3 earnings-per-share (EPS) of $0.81, above the $0.78 FactSet estimate, with revenues rising 7.6% year-over-year (y/y) to $24.5 billion, north of the Street's forecast of $23.5 billion. Profits were 8% lower versus last year as the company booked $738 million in credit losses for the quarter. Net interest income for the bank rose 24% y/y to $2.7 billion amid the rise in interest rates. Chairman and CEO Brian Moynihan said, "Our U.S. consumer clients remained resilient with strong, although slower growing, spending levels and still maintained elevated deposit amounts." Shares are higher.
Volatility in the markets remains after another dose of inflation data last week that showed price pressures persist and has forced the Fed to aggressively tighten monetary policy. Higher interest rates lead to a stronger U.S. dollar, which is likely to add to global economic pressure and weigh on corporate profits as discussed in the latest Schwab Market Perspective: No Stopping the Fed. Meanwhile, as Q3 earnings season next week, Schwab's Chief Investment Strategist Liz Ann Sonders discusses in her article, Earnings: Trampled Under Foot? how the bear market has been driven by multiple compression, making valuations look relatively compelling, but expected weakness in earnings may limit the upside potential for stocks.
Additionally, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, notes in his latest article, The End of Earnings Growth?, how the earnings outlook is dimming as the economy slows, which could result in cuts to earnings forecasts and downside for stocks. However, Jeff points out that U.K. earnings have been a surprising outperformer.