Stocks Rise as Earnings Take Center Stage

The U.S. stock market has been on a tear, with the S&P 500 index soaring roughly 20% in 2024, adding more than $8 trillion to its market capitalization. This rally has been driven by expectations of easing monetary policy and resilient profit outlooks. However, the tide may be turning as analysts slice their expectations for third-quarter results. Companies in the S&P 500 are expected to report a 4.7% increase in quarterly earnings from a year ago, according to data compiled by Bloomberg Intelligence (BI). This is down from projections of 7.9% on July 12 and would represent the weakest increase in four quarters, BI data show.

"The earnings season will be more important than normal this time," said Adam Parker, founder of Trivariate Research. "We need concrete data from corporates." Investors are eager to see if companies are postponing spending, if demand has slowed, and if customers are behaving differently due to geopolitical risk and macro uncertainty. "It is exactly because there is a lot going on in the world that corporate earnings and guidance will particularly matter now," Parker said.

Reports from major companies start arriving this week, with results from Delta Air Lines Inc. due Thursday and JPMorgan Chase & Co. and Wells Fargo & Co. scheduled for Friday. "Earnings seasons are typically positive for equities," said Binky Chadha, chief U.S. equity and global strategist at Deutsche Bank Securities Inc. "But the strong rally and above-average positioning going in (to this earnings season) argue for a muted market reaction."



Obstacles facing investors right now are no secret. The U.S. presidential election is just a month away with Democrat Kamala Harris and Republican Donald Trump in a tight, fierce race. The Federal Reserve has just started lowering interest rates, and while there’s optimism about an economic soft-landing, questions remain about how fast central bankers will reduce borrowing costs. And a deepening conflict in the Middle East is raising concerns about inflation heating up again, with the price of West Texas Intermediate oil rising 9% last week, the biggest weekly gain since March 2023.

"The bottom line is that revisions and guidance are weak, indicating lingering concerns about the economy and reflecting some election year seasonality," said Dennis DeBusschere of 22V