US stock investors will turn their attention this week to quarterly earnings from major banks, inflation data and other economic releases for clues on corporate profitability and the outlook for interest rates—two key factors underpinning the market's rally.
The S&P 500 closed at a record high last Tuesday for the first time since mid-August, lifting its year-to-date gains to more than 14%. The upcoming data and earnings reports will test whether the rally can sustain its momentum amid rising Treasury yields and concerns about persistent inflation.
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The September Consumer Price Index (CPI), due on Wednesday, will be among the most closely watched releases ahead of the Federal Reserve's October 27-28 policy meeting. The report could shape expectations for the central bank's next move after it raised interest rates last month for the first time since 2023 to contain inflation.
Bank earnings to offer clues on economic strength
JPMorgan Chase, Goldman Sachs, Citigroup and Wells Fargo are scheduled to report quarterly results on Tuesday, followed by Morgan Stanley and Bank of America on Wednesday. The six largest US banks traditionally kick off earnings season, offering insights into consumer spending, lending conditions and activity across capital markets.
Following a strong first half, earnings at S&P 500 companies are expected to have risen by more than 30% in the third quarter, according to LSEG IBES estimates. Investors will assess whether financial companies can sustain earnings growth despite higher borrowing costs and mounting economic uncertainties.
Bank stocks have come under pressure recently as Treasury yields climbed. The S&P 500 banks index has fallen 7.5% over the past month, making the upcoming results particularly important for investor sentiment.
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Investors will watch how higher interest rates and energy costs are affecting consumer spending and capital-market activity, according to market participants cited by Reuters. Strong results could ease concerns about the sector's underlying financial health, while signs of weakening demand or deteriorating business conditions could add to market volatility.
Other prominent companies scheduled to report results next week include healthcare groups Johnson & Johnson and UnitedHealth Group, as well as asset manager BlackRock.
CPI report could influence Fed rate outlook
The September CPI report is expected to show annual headline inflation of 3.7%, while core inflation, which excludes food and energy, is forecast to rise to 2.5%, according to a Reuters poll. Both measures remain relevant to the Fed's efforts to bring inflation back to its 2% target.
Investors will closely monitor services inflation, which has remained persistent and could complicate the central bank's efforts to contain price pressures. A slower-than-expected decline in underlying inflation could strengthen the case for further monetary tightening, while signs of easing price pressures may help reduce concerns about additional rate increases.
Alongside the CPI report, producer price inflation and retail sales data will provide a broader assessment of price pressures and the resilience of the US economy.
Market participants have scaled back expectations of another rate increase at the Fed's October 27-28 meeting. However, stronger-than-expected economic data or renewed inflation acceleration could revive those expectations, potentially weighing on equities.
Rising Treasury yields remain a key risk
The Fed's return to rate hikes has been one factor pushing Treasury yields higher. The benchmark 10-year US Treasury yield stood at around 5.24% late on Friday, after recently reaching its highest level in 24 years.
Rising yields create challenges for stocks by making bonds more attractive to investors and increasing the discount rate used to value future corporate earnings. Higher borrowing costs can also weigh on corporate investment, consumer demand and economic growth.
Although the 5% level on the 10-year Treasury yield had been viewed as a potential pressure point for equities, US stocks have so far avoided a significant downturn despite yields moving above that threshold.
Investors will now assess whether strong corporate earnings can offset the pressure from elevated interest rates or whether persistent inflation and higher bond yields will eventually undermine the market rally.
The combination of bank results, inflation readings and other economic indicators is likely to shape expectations for monetary policy and provide a crucial test of the durability of the S&P 500's gains.
(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times.)
