Next week, around 70 S&P 500 companies are set to release their third-quarter earnings, with expectations for strong results. However, persistent market fears related to interest rates, AI spending deceleration, and a bifurcated market performance may temper investor optimism. Key reports include Tesla, Procter & Gamble, American Express, and Meta Platforms, but even solid earnings might not be enough to overcome broader economic uncertainties.
As the third quarter earnings season gains momentum, a wave of reports from approximately 70 S&P 500 companies is set to hit the market next week. While these results are anticipated to be robust, investor sentiment remains cautious, with underlying market fears potentially overshadowing even strong corporate performance. This period, though not the peak of earnings season, will offer a crucial glimpse into the health of businesses across various sectors.
Among the key reports are tech giants like Tesla, scheduled to release its earnings on Wednesday, shortly after unveiling its long-awaited Roadster. Consumer staples and financial services will also be under the spotlight with Procter & Gamble and American Express due to report. The semiconductor industry will be represented by Lam Research and Texas Instruments, while social media behemoth Meta Platforms is also on deck.
The current earnings landscape paints a positive picture, with 85% of the 46 S&P 500 companies that have already reported exceeding expectations. The index is on track for a significant blended earnings growth rate of 29%, a figure expected to climb higher as more data becomes available. This fundamental strength is seen as a potential anchor for the market, which has been characterized by a bifurcated performance: the 'Magnificent Seven' stocks have driven index gains, while the broader market, particularly small-cap stocks, has struggled, with the latter quietly entering correction territory this week.
However, headwinds persist. Concerns about a potential 2027 market downturn, fueled by new tech IPOs and a widening U.S. fiscal deficit, have been voiced by market veterans like Paul Tudor Jones. The prevailing environment of higher interest rates, elevated oil prices, and upward pressure on bond yields adds to the uncertainty. Despite expectations that the Federal Reserve will maintain current rates at its upcoming meeting, fed funds futures indicate a possibility of further rate hikes by year-end.
Adding to the market's unease is the potential for a slowdown in artificial intelligence spending, a sector that has been a significant growth driver. This worry is reflected in the recent performance of the VanEck Semiconductor ETF (SMH), which saw its longest losing streak since 2006. Furthermore, the strong earnings growth observed this season is largely concentrated in the energy and tech sectors. Bank of America reports that excluding these sectors, the S&P 500's earnings growth would decelerate to 7% from 12% in the previous quarter.
Despite the market turning four this week, a historically bullish milestone, lingering concerns about rates, AI spending, and the sustainability of current earnings growth could lead to a near-term pullback of up to 5% by year-end, according to Bob Lang, chief options analyst at Explosive Options. The long-term outlook for 2024 also remains clouded, as the current pace of revenue and earnings growth is not sustainable indefinitely.
This Week's Economic Calendar & Earnings Reports (All times ET):
Monday, Oct. 19
- 10:00 a.m.: NAHB Housing Market Index (October)
- Earnings: W.R. Berkley, Steel Dynamics, Fifth Third Bancorp
Tuesday, Oct. 20
- 8:15 a.m.: ADP Weekly Employment change (10/03)
- 8:30 a.m.: Housing Starts (September)
- 10:00 a.m.: Pending Home Sales (September)
- Earnings: Capital One Financial, United Airlines, Netflix, Genuine Parts Company, MSCI, Halliburton, 3M, KeyCorp, Hasbro, General Motors, Equifax, Synchrony Financial, RTX, Philip Morris International, Northrop Grumman, GE Aerospace
Wednesday, Oct. 21
- Earnings: Crown Castle, International Business Machines, Lam Research, Texas Instruments, United Rentals, Tesla, Rollins, Southwest Airlines, Globe Life, CSX, Abbott Laboratories, Moody's, Westinghouse Air Brake Technologies, Thermo Fisher Scientific, Elevance Health, Danaher, AT&T, Northern Trust, NextEra Energy, CME Group, Meta Platforms
Thursday, Oct. 22
- 8:30 a.m.: Initial Claims (10/17)
- 10:00 a.m.: Leading Indicators (September)
- Earnings: Procter & Gamble, Nasdaq, Tractor Supply, Roper Technologies, CBRE Group, Valero Energy, PulteGroup, PG&E, Lockheed Martin, Huntington Bancshares, Quest Diagnostics, Comcast, Blackstone, Norfolk Southern
Friday, Oct. 23
- 9:45 a.m.: S&P Global PMI Manufacturing preliminary (October)
- 9:45 a.m.: S&P Global PMI Services preliminary (October)
- 10:00 a.m.: Michigan Sentiment final (October)
- Earnings: SLB, American Express
