Third-quarter earnings season has shifted into high gear, and this week, almost one-third of the firms within the S&P 500 are anticipated to release their financial results. Corporate profits are emerging as the big driver of what the market is likely to do in the near term, and if earnings results fall short of expectations, the stock market’s reaction could be severe.
Investors are closely monitoring third-quarter U.S. earnings, especially in the wake of a 2.8% year-over-year decline in S&P 500 earnings during the second quarter. Of the 118 that have reported so far, 81% have beaten analysts’ expectations but it is important to mention that overall third-quarter earnings for S&P 500 companies are now estimated to have increased just 1.7% year-over-year, according to LSEG IBES data released this Tuesday.
This is only a slight improvement compared to last Thursday when the projection was for a 1.6% year-over-year increase; however, it remains higher than the 1.3% estimated rise as of July 1. A factor that contributed to the recent adjustment in the third-quarter forecast was a decrease in Pfizer’s average estimate, according to Tajinder Dhillon, senior research analyst at LSEG.
Alphabet, Microsoft Corp, Visa, Boeing, Meta (Facebook), International Business Machines (IBM), Bristol-Myers Squibb (BMY), Amazon, Mastercard, Ford, Intel, Chevron, and Exxon Mobil are among the companies scheduled to report quarterly results by the end of this trading week. A positive financial performance among these companies could lift shares on Wall Street above the current levels, and investors will watch guidance carefully from these companies to determine if profit margins remain healthy and strong.
In the realm of economics, business activity in the United States has shown an uptick this month, as indicated by the preliminary “flash” Purchasing Managers’ Indexes from S&P Global. This Thursday, the Commerce Department is scheduled to unveil its initial assessment of third-quarter GDP, which is anticipated to reveal a significant increase to 4.3% from the 2.1% recorded in the second quarter.
Then, on Friday, the Commerce Department is projected to release its highly anticipated report on Personal Consumption Expenditures (PCE), which analysts believe will offer additional proof that inflation is gradually moderating and approaching the Federal Reserve’s targeted annual rate of 2%. Bill Merz, head of Capital Market Research at U.S. Bank Wealth Management in Minneapolis, said:
“The question is, can the Fed thread the needle – can they get inflation to moderate to an acceptable level before things deteriorate significantly for the U.S. consumer? If that happens, the odds increase that the U.S. economy will avoid a recession.”
