The upcoming earnings season could determine the stock market’s direction. The S&P 500 and Dow Jones Industrial Average are at record highs after a strong jobs report and cooling inflation boosted investor confidence. Tech stocks led the way this week, with the sector rising over 2%.
Nvidia advanced more than 7%. Historically, the S&P 500 rises 2% in the first four weeks of a reporting period, according to Oppenheimer. On Friday, JPMorgan Chase and Wells Fargo rallied after reporting earnings, marking a good start to the season.
However, investors are cautious as October is a weak month, especially before a presidential election. Valuations are stretched, and traders are monitoring the Fed’s data-dependent approach to rates. The 10-year Treasury yield topped 4.1% this week.
“It’s tough to predict the market direction right now,” said Charlie Ashley of Catalyst Funds. “The market dynamics make it a challenge.” Ashley emphasized that much depends on corporate earnings. Major averages posted a fifth week of gains.
The Dow, S&P 500, and Nasdaq each gained over 1% this week.
Earnings could guide market direction
Next week, bank earnings will provide insight into capital markets and consumer spending.
Recent reports have alleviated fears of weaker consumer spending, but concerns linger. Ally Financial saw shares tumble last month after its CFO disclosed rising credit challenges. Reports next week include Bank of America, Goldman Sachs, Morgan Stanley, PNC Financial, and Citizens Financial.
Investors remain optimistic about corporate profits, with the blended growth rate for Q3 earnings at 3.87%, according to FactSet. “Estimates have come down quite a bit, so there’s a low bar to clear,” said Ross Mayfield of Baird Private Wealth Management. “Which is probably good for how stocks will respond.”
Despite optimism, uncertainty remains.
Investors are hopeful for gains but bracing for choppiness due to the election, rising yields, and geopolitical tensions. Ashley stated there’s an equal chance of stocks rising or falling 5%. Mayfield suggested a 5-10% pullback wouldn’t surprise him but maintained a bullish outlook, expecting the S&P 500 to climb another 5% by year-end.
“I would lean into the bull market,” Mayfield said. “There’s plenty of room to run.”
Investors will focus on consumer spending data, including retail sales and business inventories on Thursday. Housing starts and building permits will provide insight into housing’s contribution to the economy.
The stock market will remain open on Columbus Day, but the bond market will be closed.
