Earnings reports in the upcoming week are anticipated to be crucial in determining the direction of the stock market. A significant increase in the number of companies scheduled to release their third-quarter results is expected. While around 10% of S&P 500 companies reported during the past week, approximately 20% are set to release their earnings in the coming week. Among these, Amazon and Tesla stand out, serving as early indicators for a larger wave of megacap results due the following week.
With the macroeconomic calendar presenting few major catalysts next week and an anticipated lull in activity before the upcoming U.S. presidential election, earnings results are expected to play a pivotal role in whether stocks, currently near all-time highs, continue to rise. Sam Stovall, CFRA Research’s chief investment strategist, observed that valuations are currently stretched. The S&P 500 is trading at a 40% premium to its long-term P/E ratio, while technology stocks are at a 60% premium. Stovall emphasized the need for better-than-expected earnings to justify the current investor enthusiasm.
Recently, Wall Street has displayed a strong risk-on sentiment, with the major averages on track for a sixth consecutive winning week. For the Dow Jones Industrial Average and the S&P 500, this would mark the first such streak since December 2023. For the Nasdaq Composite, it would be the first since July.
Expectations for earnings growth this season are relatively modest, providing companies with an opportunity to exceed expectations despite any potential disappointments impacting investor sentiment and potentially stalling gains in equities. John Butters from FactSet noted that S&P 500 companies in the third quarter are anticipated to show earnings growth of just 4.1%, a decrease from the September estimate of 4.4%, and weaker than the growth experienced in the previous reporting season, which was well below the 12.5% growth projected for the fourth quarter. However, he also mentioned that third-quarter earnings growth is likely to surpass 7%, as companies often deliver positive surprises.
The upcoming week will feature significant earnings reports from Amazon, expected on Thursday, and Tesla, confirmed for Wednesday, both potentially setting the tone for the subsequent week of megacap tech earnings. Amazon, in particular, might serve as an indicator for the broader consumer discretionary sector. Additionally, reports are anticipated from a diverse array of industries, including aerospace and defense companies such as Lockheed Martin and GE Aerospace, as well as prominent corporations like International Business Machines. Other companies scheduled to report include General Motors, Verizon Communications, United Parcel Service, and Southwest Airlines.
If these earnings results continue to exceed expectations, it could reinforce the signs of market broadening observed recently, even as Nvidia and other semiconductor companies maintain strong performance. The small-cap Russell 2000 experienced a nearly 2% rally this week, outperforming the S&P 500’s 0.8% increase. Meanwhile, the equal-weighted S&P 500 slightly outperformed the market-cap-weighted index, signaling potential strength in sectors such as health care. Nelson Yu, head of equities at AllianceBernstein, indicated that there has been a broadening of what is working in the market during the third quarter and expects this trend to continue.
Week Ahead Calendar
Monday, October 21
- 10 a.m.: Leading Indicators (September)
Tuesday, October 22
- 10 a.m.: Philadelphia Reserve Bank President Harker speaks in Ten Independence Mall, Philadelphia
Wednesday, October 23
- 10 a.m.: Existing Home Sales (September)
- 10 a.m.: Fed Beige Book
Thursday, October 24
- 8 a.m.: Building Permits final (September)
- 8:30 a.m.: Chicago Fed National Activity Index (September)
- 8:30 a.m.: Continuing Jobless Claims (10/12)
- 8:30 a.m.: Initial Claims (10/19)
- 9:45 a.m.: PMI Composite preliminary (October)
- 9:45 a.m.: S&P PMI Manufacturing preliminary (October)
- 9:45 a.m.: S&P PMI Services preliminary (October)
- 10 a.m.: New Home Sales (September)
- 11 a.m.: Kansas City Fed Manufacturing Index (October)
- Friday, October 25
- 8:30 a.m.: Durable Orders preliminary (September)
