Next week’s profits will be key to the direction of the stock market. The number of companies reporting third-quarter results is set to increase significantly in the coming days. While about one in ten S&P 500 companies reported earnings in the past week, about 20% of companies in the broader index plan to report earnings next week. The most notable names among them will be Amazon and Tesla, which will serve as precursors to a slew of large-cap results due next week. .SPX 5D Mountain S&P 500 Five-Day Trend With major catalysts on next week’s macroeconomic calendar and expectations generally quiet for next month’s U.S. presidential election, earnings results should be the main factor in whether stocks rally. The price is trading near all-time highs and could go higher. In fact, valuations are already too high, said Sam Stovall, chief investment strategist at CFRA Research. He pointed out that the long-term price-to-earnings ratio of the S&P 500 index is at a 40% premium to its long-term price-to-earnings ratio, while the price-to-earnings ratio of technology stocks is as high as more than 60%. “We need better-than-expected earnings to demonstrate investor enthusiasm,” Stovall said. Wall Street has clearly been taking risks of late. The major averages posted gains for a sixth consecutive week on Friday. For the Dow Jones Industrial Average and S&P 500, it was the first consecutive gains since December 2023. Clearance threshold is low. Profit growth expectations for this quarter are already lower than in the past. While this means any disappointment could dampen investor sentiment and potentially lead to stock market gains being priced in, it also means companies have a better chance of beating expectations. FactSet’s John Butters pointed out that third-quarter earnings growth for S&P 500 companies is expected to be just 4.1%, down from the 4.4% expected in September and down from the double-digit growth in the previous reporting quarter. By the same token, Butters noted that third-quarter earnings growth for the S&P 500 could exceed 7%, given companies’ track record of delivering positive surprises. “If things have gone well in previous reporting periods,” Stovall said, “there’s no reason it shouldn’t work out this time.” Next week, Amazon will deliver notable results, with earnings expected on Thursday, while Tesla RA will also report earnings on Wednesday, both of which could serve as precursors to a big earnings week for big tech stocks next week. Amazon, in particular, could become a leader in the broader consumer discretionary industry. But investors will get plenty of reports from companies across a wide range of industries, including aerospace and defense companies like Lockheed Martin Corp. and GE Aerospace, as well as blue-chip giants like International Business Machines Corp. Other companies including General Motors, Verizon Communications, United Parcel Service and Southwest Airlines will also release reports. If these earnings results continue to surprise higher, it could add credibility to recent signs of market expansion — even as Nvidia and other semiconductor companies continue to perform well. The small-cap Russell 2000 index gained nearly 2% for the week, outperforming the S&P 500’s 0.8% gain. Meanwhile, the equal-weighted S&P 500 index is slightly above its cap-weighted benchmark this week, a bullish sign for sectors like health care. “We think what you saw in the third quarter was actually an expansion of effective measures,” said Nelson Yu, head of equities at AllianceBernstein. “We think that’s going to continue.” One week ahead calendar all times ET . Monday, October 21, 10 a.m. Leading Indicators (September) Tuesday, October 22, 10 a.m. Philadelphia Reserve Bank President Harker speaks at 10 Independence Plaza in Philadelphia Wednesday, October 23, 10 a.m. Existing Home Sales ( September) 10 a.m. Fed Beige Book Thursday, October 24, 8 a.m. Final Building Permit Data (September) 8:30 a.m. Chicago Fed National Activity Index (September) 8:30 a.m. Continuing Applications Unemployment claims (10/12) 8:30 AM Initial jobless claims (10/19) 9:45 AM PMI preliminary data (October) 9:45 AM S&P Manufacturing PMI preliminary value (October) AM 9:45 S&P Services PMI Preliminary (October) 10 a.m. New Home Sales (September) 11 a.m. Kansas City Fed Manufacturing Index (October) Friday 25 8:30 a.m. Durable Orders Preliminary (September) moon)
