The two biggest issues looming over the stock market will be central next week as Wall Street tries to regain balance after a volatile start to October. A key test is corporate earnings as the third-quarter reporting season begins. JPMorgan, Morgan Stanley and other major banks are reporting their numbers, while Delta Air Lines is one of the headliners outside of the financial sector. Earnings sentiment is low and getting worse. FactSet’s John Butters said in a Sept. 30 note that the third quarter had already seen the biggest cut in earnings estimates for S&P 500 companies in more than two years, but many on Wall Street believe that the estimates are still too high, both for this quarter and the next where a recession seems likely. “If there’s a disconnect, it’s that expectations haven’t come down enough,” said Nick Raich of The Earnings Scout, pointing to the fourth quarter and 2023 as key areas to watch. “I think we’re going to see overall earnings expectations fall maybe 10% or 15% this earnings season. They only fell like 2% last earnings season. That means negative revisions will accelerate in the down,” he added. . The first earnings results have not been good. Raich said that as of Thursday, 20 S&P 500 companies had already reported and five had seen their shares fall more than 20% afterward. Advanced Micro Devices joined the party on Thursday evening, warning that its revenue would miss in the third quarter and sending its shares tumbling on Friday. Even with general investor pessimism and a widespread belief that earnings results are too high, early reporters show that third-quarter reports can still cause big swings. “Disappointing earnings won’t be a surprise, the question is whether those earnings will disappoint investors,” Frank Gretz, technical analyst at Wellington Shields, said in a note to clients. “How bad is the price?” Inflation Outside of earnings, inflation will be a major focus for investors next week. Two key reports are due, with the producer price index on Wednesday and the consumer price index on Thursday. The US economy is currently buoyed by its resilient labor market, but many economists fear the Federal Reserve’s fight against inflation could lead to a recession. “We’re now at the point where I think the inflation data is more important than the labor market data, because until the inflation data moderates, the Fed won’t feel comfortable slowing down,” Eric Winograd , director of developed market economics. research at AllianceBernstein. There have been some signs that inflation is easing, with prices paid for the components of manufacturing surveys falling and signs growing that the rental market is starting to reverse like the housing market before. But those numbers have yet to show up in the Fed’s main inflation metrics, and the central bank has said it wants to see several months of declining inflation before reversing course. “Inflation, inflation, inflation. We need to see evidence that price pressures are easing. I think there’s good evidence that the economy is starting to slow, but it’s going to take more than what we’ve already seen to bring inflation back down .” Winograd said. Weekly Calendar Monday 1:35 PM Fed Vice Chairman Lael Brainard Tuesday 6:00 NFIB Small Business Index Wednesday Earnings: Pepsico 8:30 Producer Price Index 1:45 PM Fed Vice Chairman Michael Barr 2:00 PM Treasury Budget 2 : 00 pm Fed Minutes 18.30. Fed Governor Michelle Bowman on Thursday. Earnings: Delta Air Lines, Walgreens Boots Alliance, Domino’s, BlackRock, Fastenal, Commercial Metals. 8:30 a.m. Claims without work 8.30. Wells Fargo, Morgan Stanley, Citigroup, UnitedHealth Group, PNC Financial, US Bancorp, First Republic Bank 8:30am Import/Export Data 8:30am Retail Sales 10:00am Trade Inventories 10:00am Consumer Sentiment from the University of Michigan
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