Get out your trust rope and harness. Investors are once again climbing the proverbial wall of worry-and earnings season could provide the piton that supports the stock market's next move higher.
Really, the stock market shouldn't be holding up as well as it is. Oil prices remain persistently high, bond yields keep rising, and the Federal Reserve's next interest-rate hike remains a question of when, not if.
And yet the Nasdaq Composite has gained 0.5% this week, while the S&P 500 index dipped 0.2%. Only the Dow Jones Industrial Average, off 1.3%, suffered a healthy drop.
The market found reasons to hold up in the economic data-a weaker-than-expected September jobs report, particularly slowing wage growth, helped soothe some investor concerns about inflation and interest rates, as the chance of the Fed raising rates in October and December tumbled Friday. But optimism about corporate profits is lifting Wall Street's mood too.
"We're clearly in a higher inflationary environment," says Marc Pinto, head of Americas Equities at Janus Henderson. "So the question people have to wrestle with is, 'What do we need for stocks to keep moving higher?' The answer is earnings growth."
So far, so good. Earnings might hold the answer for the stock market's remarkable resilience. Micron Technology's blockbuster report on Sept. 30 gave the market a glimpse of what is yet to come. The memory chip leader's results on guidance are a sign that spending on artificial intelligence is continuing at a robust pace. Investors will get a further glimpse at how companies fared in the third quarter this coming week, when Constellation Brands, Levi Strauss, PepsiCo, and Delta Air Lines release their results. The market will be keeping an eye on these companies for clues about whether consumers continue to spend despite all the pressure from rates and oil.
Earnings guidance will be key. Earnings for the S&P 500 are currently expected to rise more than 25% in the fourth quarter, and 2027 earnings are forecast to increase 15% from 2026 levels, a slowdown from this year's estimates of more than 30% profit growth, but still impressive. Joshua Wein, a portfolio manager at Hennessy Funds, said it's "hard to imagine earnings falling off a cliff in the fourth quarter and 2027."
And it may be Big Tech's turn to shine. Of the Magnificent Seven, just three names-Apple, Meta Platforms, and Nvidia-have risen more than 10% this year. Tesla, meanwhile, has dropped, while Alphabet, Microsoft, and Amazon.com have posted single-digit gains. That's resulted in a group that now looks cheaper than it did at the start of the year: The Roundhill Magnificent Seven exchange-traded fund trades at 25 times earnings forecasts for the next 12 months, down from 32 times at the start of the year.
"We're overweight in large-caps and the megacaps in particular," says Todd Jablonski, global head of multi-asset and quant strategies at Principal Asset Management. "It's about minimizing volatility."
So leave the worrying to the other guy, and enjoy the climb.
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