Stocks pushed higher in mid-morning trading today, with the Dow Jones Industrial Average climbing 1.1% and the S&P 500 gaining about 1.2%. The tech-centric Nasdaq Composite wasn’t far behind, posting a 1% increase. This uptick comes as Wall Street gears up for a slew of corporate earnings reports and keeps a wary eye on escalating geopolitical tensions, particularly the Israel-Hamas conflict.
Earnings season is gaining momentum, with Goldman Sachs and Bank of America set to report tomorrow, following positive numbers from their Wall Street counterparts. The tech sector is also in the spotlight, as Tesla and Netflix are slated to kick off their earnings reports later this week. These updates will be closely watched for signs of the sector’s resilience in the face of persistently high interest rates.
On the economic data front, a September retail sales report is anticipated to show modest growth, providing a brief respite in an otherwise data-light week. Recent figures indicated a cooling in inflation, leading to market speculation that the Fed might hold off on interest rate hikes in its November meeting. However, the market is still struggling to find solid ground due to rising geopolitical risks and the ongoing impact of higher interest rates.
Last week’s market performance was a mixed bag. The Nasdaq dipped nearly 0.2%, while the S&P 500 and the Dow Jones Industrial Average rose by almost 0.5% and about 0.8%, respectively. Inflation data released last week showed a slowdown in price increases, fueling optimism for a rate pause in November. “Continued strength in the labor market could lead to persistence in wage growth and forestall declines in consumption growth,” noted Oxford Economics’ team of economists. They added that this could “raise the odds of rate increases this year, extend the duration of restrictive monetary policy, and increase the chances of a recession occurring down the road.”
The impact of the Fed’s rate hikes on corporate America is expected to be a focal point this earnings season. Major financial institutions like JPMorgan Chase, Citigroup, and Wells Fargo have already reported higher profits. However, JPMorgan CEO Jamie Dimon warned of looming risks. “US consumers and businesses generally remain healthy, although consumers are spending down their excess cash buffers,” Dimon stated. He also highlighted that rising geopolitical tensions could further muddy the waters, saying, “This may be the most dangerous time the world has seen in decades.”
In the coming week, the financial sector’s earnings calendar will be led by Bank of America, Goldman Sachs, and Morgan Stanley. “So we’re getting the best of bank earnings today and the rest is going to be not quite as exciting,” said Dave Ellison, Hennessy Financial Funds manager.
For Tesla, margins remain a key concern after the electric vehicle maker missed Wall Street’s estimates for third-quarter deliveries. Morgan Stanley’s Adam Jonas indicated that margins likely fell to 17.5% from 18.2% in the prior period. As for Netflix, investors will be keen to hear about rumored price hikes, the company’s crackdown on password sharing, and the success of its advertising tier.
The broader question this earnings season is whether corporate results can lift stocks out of their recent slump. “We expect a better-than-feared earnings season and the SPX trading toward the top end of our range,” said Wells Fargo’s Christopher Harvey. However, he cautioned that the “upside will be hampered by interest rates.”
Investors are also keeping tabs on the Middle East crisis, as a full-blown regional conflict could send oil prices skyrocketing, potentially triggering a global recession. Crude oil futures and Brent crude futures hovered around $87 and $91 a barrel today, after surging nearly 6% last Friday. Meanwhile, safe-haven assets like gold and bonds saw prices fall, with the 10-year Treasury yield rising to 4.69%.
Momentum remains bullish for the time being, and October’s seasonal trend supports a strong finish to the month. The market has fit its seasonal model almost perfectly since mid-September. That’s unlikely to change, especially after the swift selloff of late September. So, unless a big (bearish) earnings surprise emerges, traders may want to lean bullish, even in the wake of an already strong rebound over the last two weeks.
