Reasons for the Recent Rally in Equity Markets.

   Schwaben Blog

October 23, 2015

Weekly Statistics:

Today Week Ago Year Ago
23-Oct-15 16-Oct-15 23-Oct-14
S&P TSX 13,953 13,838 14,227
S&P 500 2,075 2,033 1,950
DJIA 17,647 17,216 16,677
OIL $44.33 $47.17 $80.39
USD vs CAD 0.7657 0.7757 0.9012
Gold $1,164 $1,177 $1,233

The consecutive announcements by the European Central Bank (ECB) and the People’s Bank of China (PBOC) on Thursday and Friday respectively drove equity indices higher. The ECB signaled that it would expand its $1.28 Trillion quantitative easing program in December and cut its deposit rate if the slowdown in emerging economies threatens the eurozone’s economic recovery. Furthermore, the Chinese central bank dropped their benchmark interest rates by 25 bps. Many analysts are viewing this cut in interest rate as a measure by Chinese leaders to spur the country’s economic growth to their target of 7 percent. The reduction in interest rates is planned to stimulate the growth of the Chinese economy and stimulate global equity markets. Unexpected smaller declines in profits in US equities also drive the recovery in equity indices from a few months ago. 77 percent of the 173 companies that have reported their earnings for Q3 2015 have reported above expectations. On September 30, the estimated earnings decline for the S&P 500 for Q3 2015 was -5.1 percent. As of today, the earnings decline has been revised to -3.8 percent. Upside earnings surprises by companies in the Information Technology, Consumer Discretionary, and Telecom Services sectors accounted for most of the decrease in the earnings decline for the index. Microsoft, McDonald’s, Amazon, AT&T, GM as well as other Blue Chip equities had a positive impact in their respective sectors. Energy and Materials are the largest contributors to the earning declines across all sectors.

Source- Bloomberg, Globe Investor Gold, Financial Post, Market Watch, Trading Economics

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