Earnings next week will be key to where stocks head from here. There will be a significant jump in the number of companies set to report third-quarter results in the days ahead. While roughly one-tenth of S & P 500 companies reported over the past week, about 20% of the broader index plans to report next week. Among the more notable names will be Amazon and Tesla , which will serve as precursors to the big slate of mega-cap results due out the following week. .SPX 5D mountain S & P 500 over five days With the macroeconomic calendar light on major catalysts next week, as well as a general lull expected in anticipation of the U.S. presidential election next month, the earnings results should be the main factor determining whether stocks, which are trading near all-time highs, can go still higher. As it is, valuations are stretched, according to Sam Stovall, chief investment strategist at CFRA Research. He noted that the S & P 500 is trading at a 40% premium to its long-term P/E ratio, while tech stocks are trading at upwards of 60%. “We need earnings to come in better than expected to help justify investor enthusiasm,” said Stovall. Wall Street has been decidedly risk-on as of late. The major averages on Friday registered their sixth straight winning week. For the Dow Jones Industrial Average and S & P 500 , it’s the first such streak going back to December 2023. As for the Nasdaq Composite , it’s the first going back to July. A low bar to clear Earnings growth expectations for this season are already lower than they have been. While that means any disappointments could ding investor sentiment, possibly leading to a digestion of gains in equities, it also means that companies have a better chance at besting expectations. FactSet’s John Butters noted that S & P 500 companies in the third quarter are expected to have posted earnings growth of just 4.1% — down from a 4.4% estimate in September — and weaker than the double-digit pace notched in the previous reporting season as well as below the 12.5% growth expected in the fourth quarter. By the same token, Butters noted that S & P 500 earnings growth is likely to come in at above 7% for the third quarter, given companies’ track record of delivering positive surprises. “If things have worked out pretty well in prior reporting periods,” Stovall said. “No reason why it’s not going to work out this time as well.” Signs of broadening Next week will bring notable results from Amazon, which is projected to post earnings Thursday, and Tesla, confirmed for a Wednesday release, both of which can serve as precursors to the big week of megacap tech earnings the following week. Amazon, in particular, could serve as a bellwether for the broader consumer discretionary sector. But investors will get a broad swath of reports from companies across a range of industries, including aerospace and defense companies such as Lockheed Martin and GE Aerospace , and blue-chip giants such as International Business Machines . General Motors , Verizon Communications , United Parcel Services and Southwest Airlines are among some of the other companies set to report. If those earnings results continue to surprise to the upside, that could add credence to the signs of broadening the market has recently been exhibiting — though Nvidia and other semiconductors have continued to do well. The small-cap Russell 2000 has rallied nearly 2% this week, better than the S & P 500’s 0.8% advance. Meanwhile, the equal-weighted S & P 500 slightly outpaced the market-cap weighted benchmark this week, a bullish signal for sectors such as health care. “We think that actually what you saw in the third quarter was kind of a broadening out in terms of what was working,” said Nelson Yu, head of equities at AllianceBernstein. “And we think that’s going to continue.” Week ahead calendar All times ET. Monday Oct. 21 10 a.m. Leading Indicators (September) Tuesday Oct. 22 10 a.m. Philadelphia Reserve Bank President Harker speaks in Ten Independence Mall, Philadelphia Wednesday Oct. 23 10 a.m. Existing Home Sales (September) 10 a.m. Fed Beige Book Thursday Oct. 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 Oct. 25 8:30 a.m. Durable Orders preliminary (September)
Earnings next week will determine whether stocks still have further to run
Oct 18, 2024
