Next week will bring significant developments for Wall Street as the third-quarter earnings season gains momentum, alongside the release of critical inflation data. The earnings reports have started off positively, particularly in the financial sector, where expectations have surpassed forecasts amid anticipated lower interest rates and an uptick in merger and acquisition activity. Predictions indicate that S&P 500 earnings will demonstrate an expansion of 8.4% compared to the same quarter last year, according to data from FactSet. However, analysts suggest that due to a trend of earnings surpassing expectations, the actual growth may exceed 13%, marking the fourth consecutive quarter of such performance.
Amid these results, investors are likely to focus intently on management earnings calls. This heightened interest is fueled by emerging signs of weakness in the labor market, a trend that some analysts attribute to the influence of artificial intelligence. With ongoing data restrictions stemming from the government shutdown, traders find themselves looking for insights elsewhere. Eric Clark, Chief Investment Officer at Accuvest Global Advisors, emphasized the importance of understanding workforce dynamics and AI integration, noting the need for clarity on potential disruptions to business.
This week has been characterized by notable fluctuations in the S&P 500, influenced by an AI market rally that has somewhat mitigated concerns surrounding potential systemic credit risks. Despite these market dynamics, all three major indices achieved weekly gains as of Friday.
As the government shutdown lingers, investors are particularly awaiting the September Consumer Price Index (CPI) report, scheduled for release on Friday. There is a strong consensus among analysts predicting a 25 basis point interest rate cut at the Federal Reserve’s upcoming meeting on October 28-29, driven in part by indications that the Fed may soon conclude its quantitative tightening campaign. The CPI report will need to show significantly elevated inflation levels to alter the positive market sentiment surrounding interest rates. Current forecasts suggest a rise in headline inflation to 3.1%, an increase from 2.9%, with monthly inflation expected to slightly dip to 0.39%. Core CPI, which excludes food and energy prices, is anticipated to remain steady at 0.30% month-over-month and 3.1% year-over-year.
Clark expressed cautious optimism, stating that the market could see a modest rise in inflation over the next few months but does not foresee significant impacts. He maintains a bullish outlook, forecasting the S&P 500 could climb to 7,200 by year-end and believes that any dips in the market next week might present buying opportunities as the year concludes.
Additionally, trade tensions remain between the U.S. and China, with upcoming discussions anticipated at the APEC Economic Leaders’ Meeting in South Korea from October 31 to November 1.
Looking ahead, the upcoming week’s earnings calendar is packed, with key contributors set to report their financial results. Highlights include Steel Dynamics on Monday, a host of major corporations such as EQT, Capital One, Netflix, and General Motors on Tuesday, as well as IBM, Tesla, and AT&T on Wednesday, followed by Ford, Intel, and Southwest Airlines on Thursday, and concluding the week with General Dynamics and Procter & Gamble on Friday. The results from these companies will certainly provide further insights into corporate America’s performance amid an evolving economic landscape.
