The market faces a series of risks such as economic fear, uncertainty about interest rates and even electoral anxiety. But perhaps the most important variable in determining whether Wall Street can continue generating returns this week is the start of corporate earnings season.
The S&P 500 index rose approximately 20% in 2024, adding more than $8 trillion to its market capitalization. Gains have been largely driven by expectations of looser monetary policy and resilient earnings prospects.
Reports from big companies will start coming in this week, with results from Delta Air Lines Inc. (DAL) scheduled for Thursday and JPMorgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC) scheduled for Friday .
However, the trend could be changing, as analysts are lowering their expectations for third-quarter results. S&P 500 companies are expected to report a 4.7% increase in quarterly profits compared to a year ago, according to data compiled by Bloomberg Intelligence. This represents a decline from projections of 7.9% on July 12 and would be the weakest increase in four quarters, BI data shows.
In particular, investors are eager to see whether companies are postponing expenses, whether demand has decreased and whether consumers are behaving differently due to geopolitical risk and to macroeconomic uncertainty, Parker noted. “It is precisely because there is so much going on in the world that corporate earnings and projections will be particularly relevant now,” he added.
“Earnings seasons are typically positive for stocks,” said Binky Chadha, chief U.S. and global equity strategist at Deutsche Bank Securities Inc. “But the strong rally and above-average position of “Investors at the start of this earnings season argue for a moderate market reaction.”
Obstacles abound
The obstacles investors face right now are no secret. The US presidential election is just a month away, with Democrat Kamala Harris and Republican Donald Trump in a tight and fierce race. The Federal Reserve has just begun cutting interest rates, and while there is optimism about a soft economic landing, questions remain about how quickly central bankers will reduce borrowing costs. Additionally, a deepening conflict in the Middle East is raising concerns about a possible rise in inflation, with the price of West Texas Intermediate oil rising 9% last week, the biggest weekly gain since March 2023.
Furthermore, to compound the situation, large institutional investors have little purchasing power at the moment and seasonal market trends are soft. The position in systematic trend-following funds is now biased lower, and the position in the options market shows that traders may not be ready to buy in case of dips.
Commodity trading advisors, or CTAs, are expected to sell U.S. stocks even if the market remains stable in the next month, according to data from Goldman Sachs Group Inc. And volatility monitoring funds, which buy stocks when volatility decreases, they no longer have room to increase their exposure.
History also seems to lean towards the pessimists. Since 1945, when the S&P 500 gained 20% in the first nine months of the year, it has had a down October 70% of the time, according to data compiled by Bespoke Investment Research. The index gained 21% this year through September.
Goldman Sachs raises its target for the S&P 500 index
Goldman Sachs (GS) has raised its target for the benchmark S&P 500 Index (^GSPC) for the end of the year and the next 12 months based on expectations of stronger margin growth for companies and a stable macroeconomic outlook through 2025.
The Wall Street giant raised the index target for the next twelve months to 6,300 from 6,000 and increased current year-end target to 6,000 from 5,600. Goldman’s year-end target implies upside potential of 4.32% from the index’s last close of 5,751.07 on Friday.
Goldman is also bullish on U.S. companies’ earnings per share (EPS) growth, raising its 2025 EPS estimate to $268 from $256, reflecting an 11% increase on a year-over-year basis. The brokerage maintained its 2024 EPS forecast at $241.
Data from August showed the US economy grew faster than initially expected in the second quarter, amid strong consumption, and corporate profits recovered, which should help sustain the expansion.
A boost from big tech stocks and recovery in the semiconductor industry cycle will also support companies’ EPS growth, the brokerage added.
Source: Ambito
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