The upcoming earnings season could decide what’s next for stocks. The S & P 500 and Dow Jones Industrial Average are at all-time highs after a strong jobs report last week and some cooler inflation data this week raised investor confidence in equities. Tech stocks outperformed this week, with the sector up more than 2%, as investors rotated back into risk-on assets. Nvidia advanced more than 7%. And, with earnings season set to ramp up, that could mean further gains. On a median basis, the S & P 500 advances 2% in the first four weeks of a given reporting period, according to a note this week from Oppenheimer. Already, on Friday, JPMorgan Chase and Wells Fargo rallied after reporting their latest results this week, an auspicious start to the earnings season. Still, investors remain on edge. October, a seasonally weak month, is especially poor before a U.S. presidential election. Valuations are stretched. Traders are attempting to understand the path forward for interest rates, with a Federal Reserve that remains very dependent on week-by-week economic data. Meanwhile, Treasury yields are on the ascent, with the 10-year yield topping 4.1% this week. .SPX YTD mountain S & P 500 “It’s tough to predict the market direction right now,” said Charlie Ashley, portfolio manager at Catalyst Funds. “It’s a challenge given the dynamics that are playing out [in] the market, with certain asset classes being stretched in terms of valuation, but balanced in terms of the economy and the labor market.” “A lot of it’s gonna … come down to the strength of corporate earnings,” said Ashley, pointing to the near-term direction for stocks. As of Friday, the major averages posted a fifth straight week of gains. The Dow Jones Industrial Average, the S & P 500 and Nasdaq Composite gained more than 1% this week, each. A strong earnings season Earnings results next week will be dominated by reports from the banking sector, giving investors further insight into the health of the capital markets as well as the consumer. While recent economic reports, including last week’s hot jobs number for September, have assuaged fears of weaker consumer spending, there remain lingering concerns. For example, online bank Ally Financial, which reports next Friday, saw shares tumble last month after the bank’s finance chief said credit challenges have risen for its customers, making its results of interest for market observers keeping track of lower-income consumers, according to Ashley. Bank of America and Goldman Sachs report on Tuesday, while Morgan Stanley is set to release results Wednesday. Several regional banks are also set to announce how they did in the most recent quarter as well, such as PNC Financial Services Group and Citizens Financial Group. Even so, investors are optimistic about the outlook for corporate profits this earnings season, especially with expectations having come down. As of Friday, the blended growth rate for third-quarter earnings was 3.87%, according to FactSet. “Estimates have come down quite a bit, so there’s kind of a low bar to clear,” said Ross Mayfield, investment strategist at Baird Private Wealth Management. “Which is, you know, all else equal, probably a good thing for how stocks will respond.” Record highs Regardless, investors have a lot more uncertainty to get past this month. While many investors remain optimistic that there is further upside for equities, they’re also bracing for choppiness given the risks around the presidential election, rising Treasury yields and escalating geopolitical risks in the Middle East and elsewhere. US10Y 5D mountain 10-year U.S. Treasury yield Catalyst’s Ashley, for example, expects that the likelihood of stocks going up by 5% is about the same as their going down by the same amount. Baird’s Mayfield, meanwhile, said a 5% to 10% pullback in coming weeks wouldn’t catch him by surprise. Still, Mayfield remains bullish, saying the “building blocks of the bull market” remain intact. He expects the S & P 500 could climb another 5% by year-end, and said he would seek opportunities in growth stocks that have taken a breather since early summer. “I would continue to lean into the bull market,” Mayfield said. “I think there’s plenty of room to run.” Next week, investors will also get further insight into the state of consumer spending with the latest retail sales report as well as business inventories data, both due out Thursday. September data for housing starts and building permits will also give traders further insight into the state of housing’s contribution to the economy. On Monday, the bond market will be closed for Columbus Day, but the stock market will be open for business. Week ahead calendar All times ET. Monday, Oct. 14 Columbus Day Bond market closed Tuesday, Oct. 15 8:30 a.m. Empire State Index (October) Earnings: United Airlines , J.B. Hunt Transport Services , Citigroup , State Street , Goldman Sachs Group , Walgreens Boots Alliance , Johnson & Johnson , Bank of America , PNC Financial Services Group , UnitedHealth Group , Charles Schwab Wednesday, Oct. 16 8:30 a.m. Export Price Index (September) 8:30 a.m. Import Price Index (September) Earnings: PPG Industries , Steel Dynamics , Discover Financial Services , CSX , Prologis , Morgan Stanley , Abbott Laboratories , U.S. Bancorp , Citizens Financial Group , Synchrony Financial Thursday, Oct. 17 8:30 a.m. Continuing Jobless Claims (10/05) 8:30 a.m. Initial Claims (10/12) 8:30 a.m. Philadelphia Fed Index (October) 8:30 a.m. Retail Sales (September) 9:15 a.m. Capacity Utilization (September) 9:15 a.m. Industrial Production (September) 9:15 a.m. Manufacturing Production (September) 10 a.m. Business Inventories (August) 10 a.m. NAHB Housing Market Index (October) Earnings: Intuitive Surgical , Netflix , KeyCorp , M & T Bank Corp ., Elevance Health , Truist Financial , Huntington Bancshares , Blackstone Friday, Oct. 18 8:30 a.m. Building Permits preliminary (September) 8:30 a.m. Housing Starts (September) Earnings: Schlumberger NV , Procter & Gamble , Fifth Third Bancorp , Regions Financial , American Express , Ally Financial
