Weekly Market Watch

Market Review: Gearing up for earnings season

Global index returns were concentrated last week; only the S&P 500^® posted a positive return and reached record highs on artificial intelligence optimism. Minutes from the Federal Reserve’s (Fed’s) September meeting showed officials anticipate further rate increases, citing underlying economic momentum. Supporting that view, the latest J.P. Morgan Global Manufacturing PMI^®, a notable leading indicator of economic activity, reached its highest level since July 2021. Investors no longer expect a rate hike at the Fed’s October meeting but markets continue to price in a December increase.

Bond yields fluctuated throughout the week. The 10-year U.S. Treasury yield reached its highest level since 2002, before retreating following a strong Treasury auction. Energy prices remained volatile, but U.S. oil, gasoline and diesel prices all fell last week amid reports that the United States was unlikely to launch imminent military strikes against Iran.

Market Outlook

Looking ahead, several major banks are slated to report earnings this week, and September inflation data will also be released. S&P 500 earnings are expected to grow nearly 30% year over year (y/y). We maintain our preference for diversified equities, but risks continue to include the upcoming U.S. midterm elections, higher bond yields, persistent fiscal deficits and geopolitical uncertainty.

Chart of the Week

Earnings growth expectations remain strong

The S&P 500 is expected to post 27.3% third-quarter earnings growth, powered by the Information Technology sector.
If realized, this growth would reflect continued margin expansion and operating leverage.
Strong margins continue to benefit large-capitalization equities, despite higher borrowing and input costs.

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