Stocks Rise as Earnings Set to Kick Into High Gear: Markets Wrap

Stocks hit fresh all-time highs as investors looked ahead to Corporate America for further vindication of soft-landing bets.

Without much in the way of economic data over the next few days, earnings reports are poised to drive Wall Street sentiment. The S&P 500 topped 5,850 and was poised for another record — its 46th this year. That’s a hint investors are not deterred by the reduced forecasts for third-quarter results, and are instead betting this reporting season will once again deliver positive surprises.

Strategists are predicting S&P 500 firms will post their weakest results in the past four quarters, with just a 4.3% increase compared with a year ago, Bloomberg Intelligence data show. Meantime, guidance by the companies implies a jump of about 16%. That solid outlook suggests companies could easily beat expectations.

“Wall Street has underestimated Corporate America lately,” said Callie Cox at Ritholtz Wealth Management. “This environment is tough to get a read on, and I don’t blame anybody who’s approaching this rally with a bit of skepticism. We still think the biggest – and most expensive – risk here is to miss a rebound and an eventual rally higher.”

The S&P 500 rose 0.7%. Volume was 20% below the past month average. The Nasdaq 100 added 0.7%. The Dow Jones Industrial Average climbed 0.4%. Nvidia Corp. led gains in megacaps, Apple Inc. gained on a bullish analyst call and Tesla Inc. rebounded after last week’s plunge. Goldman Sachs Group Inc., Bank of America Corp. and Citigroup Inc. advanced ahead of results.

Treasury futures were marginally lower while cash trading was closed for a US holiday. The dollar edged up. Bitcoin jumped over 4.5%. Oil declined after China’s highly anticipated Finance Ministry briefing on Saturday lacked specific new incentives to boost consumption in the world’s biggest crude importer.

Earnings season unofficially kicked off on Friday, led by financial bellwethers JPMorgan Chase & Co. and Wells Fargo & Co. Besides other big banks reporting this week, traders will be paying close attention to results from Netflix Inc. and JB Hunt Transport Services Inc.

“While there is a risk of earnings slowing, corporates nevertheless appear well-positioned to weather the storm. Going forward, they will likely play an essential role in maintaining economic stability and supporting consumer confidence,” said Christian Floro at Principal Asset Management.

To Solita Marcelli at UBS Global Wealth Management, third-quarter results should confirm that large-cap corporate profit growth is solid against a resilient macro backdrop.

“We maintain our positive outlook for US equities, supported by healthy economic and profit growth, the Fed’s easing cycle, and AI’s growth story,” she said. “While valuations are high, we think they are reasonable against the favorable backdrop.”

Marcelli reiterated her S&P 500 price target of 6,200 by June 2025, and continue to like “AI beneficiaries and quality stocks.”

An improving trend in US macro data should continue to offer support for stocks tied to economic momentum, according to Morgan Stanley strategist Mike Wilson.

“Further stabilization in the economic surprise index should support quality cyclicals even if it comes amid higher yields,” Wilson and his team wrote in a note.

The recent rise in bond yields shows markets are pricing the probability of higher growth, which typically is favorable for cyclical stocks, they said.

Better US data and supportive policy have helped lower downside risks near-term, Goldman Sachs Group Inc. strategists said, shifting to overweight equities and underweight credit for the next three months.

Strategists led by Christian Mueller-Glissmann noted equities can deliver attractive returns driven by earnings growth and valuation expansion in late-cycle backdrops, while credit total returns are usually constrained by tight credit spreads and rising yields.

While they think the risk of a bear market remains relatively low, the analysts see potential for volatility due to geopolitical shocks, US elections, and less favorable growth/inflation mix.

Corporate Highlights:

B. Riley Financial Inc., the money-losing broker-dealer and investment firm looking to cut debt, agreed to sell a majority stake in its Great American Holdings business to funds managed by Oaktree Capital Management LP.
Adobe Inc. unveiled artificial intelligence tools that can create and modify videos, joining Big Tech companies and startups in trying to capitalize on demand for the emerging technology.
Caterpillar Inc. was downgraded to underweight by Morgan Stanley, which flagged a disconnect between fundamentals and share price.
Amgen Inc. was downgraded to hold at Truist Securities, which said upcoming obesity data is already priced into the stock.
SoFi Technologies Inc. reached a deal to use $2 billion of Fortress Investment Group LLC funds for the origination of personal loans.
Elliott Investment Management has called for a special shareholder meeting at Southwest Airlines Co., officially kicking off the firm’s first US proxy fight since 2017.

Key events this week:

Eurozone industrial production, Tuesday
US Empire Manufacturing index, Tuesday
Goldman Sachs, Bank of America, Citigroup earnings, Tuesday
Donald Trump will be interviewed by Bloomberg editor-in-chief John Micklethwait at the Economic Club of Chicago, Tuesday
Fed’s Mary Daly, Adriana Kugler speak, Tuesday
Morgan Stanley earnings, Wednesday
ECB rate decision, Thursday
US retail sales, jobless claims, industrial production, Thursday
Fed’s Austan Goolsbee speaks, Thursday
China GDP, Friday
US housing starts, Friday
Fed’s Christopher Waller, Neel Kashkari speak, Friday