Earnings Season to Decide Stock Market’s Next Move
The stock market, currently riding high with the S&P 500 and Dow Jones Industrial Average at all-time highs, is poised for a pivotal moment. The upcoming earnings season, starting strong with positive results from JPMorgan Chase and Wells Fargo, will be crucial in determining the market’s trajectory. While recent economic data, including last week’s robust jobs report and cooler inflation numbers, has boosted investor confidence, concerns remain regarding valuations, rising Treasury yields (the 10-year yield exceeding 4.1% this week), and the upcoming US presidential election. The overall market direction is uncertain, with experts highlighting strong corporate earnings as a key factor influencing the near-term outlook. This article delves into the key factors influencing the market and provides a detailed look at the upcoming earnings reports.
Key Takeaways: Navigating the Uncertain Market
- Record highs for the S&P 500 and Dow Jones, fueled by positive economic indicators and a rotation back into risk-on assets, are tempered by underlying uncertainties.
- Earnings season will be critical in determining the market’s next move; the initial positive reports from major banks offer a glimmer of hope.
- Rising Treasury yields and a seasonally weak October prior to a US presidential election add to the prevailing uncertainty.
- Investor sentiment is mixed, with cautious optimism tempered by concerns about valuations and potential market corrections.
- Corporate earnings strength is pinpointed as the paramount factor in shaping the immediate future of stock prices.
A Rollercoaster Ride: Analyzing Current Market Dynamics
The current market picture is a complex tapestry woven from threads of positive and negative economic indicators. The strong September jobs report, coupled with easing inflation, bolstered investor confidence and led to a resurgence in “risk-on” assets, particularly tech stocks, which experienced a 2% sector-wide increase. Nvidia’s impressive 7% advancement exemplifies the positive momentum. This positive trend is further supported by Oppenheimer’s observation that the S&P 500 historically advances by a median of 2% during the first four weeks of an earnings reporting period. The strong early performance of JPMorgan Chase and Wells Fargo following their earnings announcements bodes well for the remainder of the season. Yet, counterbalancing this optimism are a number of significant risk factors.
Concerns in the Market
Despite the positive indicators, uncertainty abounds. October is historically a weak month for the market, and this year’s election adds another layer of unpredictability. Elevated valuations across many asset classes raise concerns about potential corrections. The steady rise in Treasury yields, particularly the 10-year yield now exceeding 4.1%, increases borrowing costs for businesses and signals a potentially changing monetary policy landscape. Portfolio manager Charlie Ashley from Catalyst Funds summarizes the situation aptly: “It’s tough to predict the market direction right now. It’s a challenge given the dynamics that are playing out [in] the market, with certain asset classes being stretched in terms of valuation, but balanced in terms of the economy and the labor market.” He further underscores the significance of the upcoming earnings reports, indicating that that “a lot of it’s gonna … come down to the strength of corporate earnings.”
Earnings Season: The Spotlight on Corporate Performance
The upcoming earnings season is poised to supply crucial answers. Next week will feature a significant focus on the banking industry, providing critical insight into the capital market’s health and consumer spending patterns. While the strong jobs report eased some anxieties concerning consumer spending, lingering worries remain. For instance, Ally Financial’s recent stock decline, following its CFO’s announcement of rising credit challenges among its customers, highlights the specific concerns surrounding lower-income consumers. This will be a closely watched metric as Bank of America, Goldman Sachs, Morgan Stanley, PNC Financial Services Group and Citizens Financial Group, among other banking giants, all present their quarterly results.
Expectations and Outlook
Despite these concerns, investor optimism endures, especially considering that earnings expectations have been revised downwards. FactSet data indicates a blended growth rate of 3.87% for third-quarter earnings as of Friday. Ross Mayfield, investment strategist at Baird Private Wealth Management, notes that “Estimates have come down quite a bit, so there’s kind of a low bar to clear, which is, you know, all else equal, probably a good thing for how stocks will respond.” This suggests that even modest positive surprises could be well-received by the market.
Navigating Uncertainty: Expert Perspectives and Market Predictions
The market’s future remains clouded in uncertainty. While optimism persists for further gains, market participants are bracing for potential volatility. The upcoming presidential election, rising Treasury yields, and escalating geopolitical tensions contribute to the current uncertainty. Catalyst’s Ashley, for example, believes that the chances of a 5% stock market increase are about equal to the chances of a 5% decrease. Baird’s Mayfield, while remaining bullish on the long-term prospects, acknowledges that a 5% to 10% pullback in the coming weeks would not be unexpected.
The Bullish Outlook
Despite the potential for short-term corrections, Mayfield maintains a positive long-term perspective. He believes the “building blocks of the bull market” remain intact and anticipates the S&P 500 could gain another 5% by year-end, advising investors to “lean into the bull market” and seek opportunities within growth stocks that have experienced recent corrections. He continues, stating “I think there’s plenty of room to run.”
The Week Ahead: Key Data Releases and Earnings Reports
The coming week is jam-packed with significant economic data releases and earnings reports that will further inform market dynamics. Thursday’s release of the September retail sales report and business inventories data will provide valuable insight into consumer spending patterns. September data on housing starts and building permits will also shed light on the housing market’s contribution to the overall economy. The following provides a snapshot of the upcoming economic calendar:
Monday, October 14th:
- Columbus Day: Bond market closed; stock market open.
Tuesday, October 15th:
- 8:30 a.m.: Empire State Index (October)
- Earnings: United Airlines, J.B. Hunt Transport Services, Citigroup, State Street, Goldman Sachs Group, Walgreens Boots Alliance, Johnson & Johnson, Bank of America, PNC Financial Services Group, UnitedHealth Group, Charles Schwab
Wednesday, October 16th:
- 8:30 a.m.: Export Price Index (September)
- 8:30 a.m.: Import Price Index (September)
- Earnings: PPG Industries, Steel Dynamics, Discover Financial Services, CSX, Prologis, Morgan Stanley, Abbott Laboratories, U.S. Bancorp, Citizens Financial Group, Synchrony Financial
Thursday, October 17th:
- 8:30 a.m.: Continuing Jobless Claims (10/05)
- 8:30 a.m.: Initial Claims (10/12)
- 8:30 a.m.: Philadelphia Fed Index (October)
- 8:30 a.m.: Retail Sales (September)
- 9:15 a.m.: Capacity Utilization (September)
- 9:15 a.m.: Industrial Production (September)
- 9:15 a.m.: Manufacturing Production (September)
- 10 a.m.: Business Inventories (August)
- 10 a.m.: NAHB Housing Market Index (October)
- Earnings: Intuitive Surgical, Netflix, KeyCorp, M&T Bank Corp., Elevance Health, Truist Financial, Huntington Bancshares, Blackstone
Friday, October 18th:
- 8:30 a.m.: Building Permits preliminary (September)
- 8:30 a.m.: Housing Starts (September)
- Earnings: Schlumberger NV, Procter & Gamble, Fifth Third Bancorp, Regions Financial, American Express, Ally Financial
This upcoming week promises to be critical for investors, providing key insights into economic indicators and corporate earnings. The market’s reaction will likely shape the direction of the market in the coming weeks and months. The upcoming earnings season will play a vital role in determining whether the current market optimism can be sustained, or if a correction is on the horizon.
