Megacap-led earnings deluge, Fed meeting headline busy US markets week

The U.S. stock rally confronts a potentially consequential week to keep its momentum heading into year-end, including a flood of corporate results headlined by megacap companies and a likely interest rate cut by the Federal Reserve after its two-day policy meeting.

U.S.-China trade tensions could come to a head in the coming days, while a persistent U.S. government shutdown further unsettles the backdrop for investors.

Stocks have weathered increased volatility this month, with the S&P 500 posting an all-time closing high on Friday, after a 36% climb since its low for the year in April. The benchmark index is up over 15% year-to-date.

Given that the market has rallied for several months without a particularly significant decline, equities could remain choppy in the days ahead, said Chris Fasciano, chief market strategist at Commonwealth Financial Network.

“What we need to see is continued earnings beats and corporate America talking positively about the economy,” Fasciano said. “When people start to get nervous, it’s when they see consumer confidence coming down, or business confidence coming down.”

Third-quarter earnings season is off to a solid start overall, despite disappointments this week from companies such as streamer Netflix and chipmaker Texas Instruments.

Including results from 143 companies that have reported, S&P 500 profits are estimated to have increased 10.4% from a year ago, according to LSEG IBES data as of Friday. So far, 87% of companies have topped analysts’ earnings estimates and 82% have beaten revenue estimates - both higher than historically typical rates.

Next week is the busiest of the season, with over 170 companies expected to report. They include Microsoft, Apple, Alphabet, Amazon and Meta Platforms, five of the “Magnificent Seven,” a group of companies with huge market capitalizations whose shares dominate equity indexes and which overall have posted outsized profit growth over the past couple of years.

Their profit edge over the rest of the index is narrowing, but the Magnificent Seven are still expected to post stronger results this period. Earnings for the group are expected to rise 16.6% against an 8.1% rise for the rest of the index, according to data this week from Tajinder Dhillon, senior research analyst at LSEG.

A number of the megacap companies are also key players in the artificial intelligence industry, enthusiasm for which has been a main driver of stock market performance.

“The factor that is probably going to have the most influence between now and the end of the year is going to be these big tech (reports),” said Anthony Saglimbene, chief market strategist at Ameriprise Financial. “The hurdle rate is very high for these companies coming into next week’s earnings.”

Other companies due to report results next week include drugmaker Eli Lilly, oil majors Exxon and Chevron and payment firms Visa and Mastercard.

The Fed is widely expected to lower its current benchmark rate of 4%-4.25% by another quarter percentage point when it decides on policy on Wednesday, a view supported by tamer-than-estimated inflation data on Friday. With that rate move already factored into asset prices, markets are likely to be more sensitive to any forward-looking language from Fed Chair Jerome Powell, with the central bank expected to cut rates further at its next meeting in December.