The S&P 500 and the Dow Jones Industrial Average ( DJIA ) hit new highs on Friday, capping a strong week as major banks made an encouraging start to third-quarter earnings.
The S&P 500 gained 0.61% to end at 5,815.03, while the Dow gained 409.74 points, or 0.97%, to end at 42,863.86. Both indicators set new records. Meanwhile, the Nasdaq Composite gained 0.33% to end at 18,342.94, 2% away from its all-time high.
All three major indexes posted their fifth straight week of gains. For the week, the S&P 500 and Nasdaq rose 1.1% each, while the Dow jumped 1.2%.
A strong start to the third quarter earnings season boosted market sentiment. JPMorgan Chase (NYSE:JPM) jumped 4.4% after beating earnings and revenue estimates, and Wells Fargo & Company (NYSE:WFC) rose 5.6% on better-than-expected results.
The focus of the coming week will be Thursday’s retail sales report. Retail spending picked up in early June and showed more steady, moderate growth throughout the summer.
JPMorgan strategists expect this trend to continue in the upcoming report.
“We expect a 0.4% increase in total spending and a 0.2% increase in the core measure of ‘control,'” they said.
Other important reports due out in the coming days include the New York Fed’s Empire survey on Tuesday, initial jobless claims and industrial production data on Thursday, and housing starts and building permits on Friday .
Strategists at Deutsche Bank believe the near-term labor market picture will be clouded by the recent hurricanes “as we expect initial jobless claims to increase further (270K vs. 258K) since the last storm.” Ongoing applications are also likely to increase, they add.
Q3 earnings rise to double consensus estimates: Yardeni
As the new earnings season begins, with the S&P 500 at record highs and valuations appearing stretched, Yardeni Research strategists say the pressure is on company management to deliver stronger-than-expected earnings. This task should be relatively manageable given the low expectations currently set.
Over the summer, earnings surprises turned increasingly negative, leading industry analysts to downgrade their third-quarter earnings forecasts. At the end of August, the Citigroup Economic Surprises Index (CESI) reached one of the most negative levels in recent years. However, once the third quarter ended, the ratio turned positive, helping both bond yields and stock prices rise.
Despite that change, analysts did not revise up their third-quarter earnings forecasts for the S&P 500, even after significant declines in previous months. Their current estimate of 3.5% year-over-year growth for the third quarter provides a low bar for companies to beat.
“We believe earnings growth will at least double,” Yarden’s team said in a note. “Thus, we expect a significant ‘earnings hook’, comparable to the upside surprises during Q1 and Q2.”
Several earnings reports are set to take center stage this week, including those from major banks such as Citigroup Inc (NYSE:C) , Goldman Sachs Group Inc (NYSE:GS) and Morgan Stanley (NYSE:MS) , along with semiconductor giant and key AI player Taiwan Semiconductor Manufacturing (NYSE:TSM).
In addition, Netflix (NASDAQ:NFLX), Procter & Gamble (NYSE:PG) and UnitedHealth Group (NYSE:UNH) are expected to report financial results.
What analysts are saying about US stocks
UBS: “Q3 results are expected to confirm that large-cap corporate earnings growth remains steady, driven by healthy economic growth and continued investment in artificial intelligence. We expect earnings per share growth of 5-7% for the S&P 500. Excluding the energy sector, growth should be 8-10%.”
“Healthy earnings growth should drive further gains for the S&P 500. Our S&P 500 EPS estimates are US$250 (11% growth) and US$270 (8% growth) in 2024 and 2025. Our S&P 500 price targets are 5,900 and 6,200 for year-end and June 2025, respectively.”
Bank of America: “Since the Fed cut 50 basis points in September, financial markets have raised the prospect of a ‘no-land’, especially with the impressive jobs report and warmer CPI print. The no-landing narrative could continue to strengthen if we have explosive retail sales this week. A ‘no-land’ is bullish for stocks, in our view, as long as inflation does not rekindle.”
Morgan Stanley: “In early July, after the first presidential debate, we discussed 3 high-level dynamics that are still important today: (1) the business cycle remains more important than the election outcome, in our view, (2) on average, volatility increases in September of election years and remains elevated through October before slowing in November, and (3) history supports a quality bias in election years.”
Evercore ISI: “The most short-term positive scenario for the market is ‘Trump + Divided’ [government] an outcome that is unlikely to be contested and benefit from the impasse.” The least short-term positive scenario for the market is “Harris + split”, an outcome that is likely to be contested, causing market volatility. SPX’s probability weighted level is 6,070.31, in line with EVR ISI’s year-end PT of 6,000 – this does not rule out pre-election volatility (2016 and 2020) nor the possibility of a year-end ‘Meltup’.
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Reference;
Karaahmetovic, V. (2024) Dow Jones, Nasdaq, S&P 500 weekly preview: Spotlight on retail sales, Q3 earnings By Investing.com, Investing.com. Investing.com. Available at: https://www.investing.com/news/stock-market-news/dow-jones-nasdaq-sp-500-weekly-preview-spotlight-on-retail-sales-q3-earnings-3661379 (Accessed: 14 October 2024).
