As the earnings season for U.S. companies heats up, market attention will focus on five critical themes. Key questions include whether last quarter’s profit growth will surpass the market’s subdued expectations, if profit margins can recover, whether the profitability of AI giants is slowing, what the prospects are for a soft landing of the U.S. economy, and if the upcoming presidential election might hinder investment spending.
Analysts predict that profits for S&P 500 companies in the third quarter will grow by 4.3% compared to the same quarter last year, marking the lowest growth rate in four quarters. This is a significant slowdown from the 14% increase in the second quarter, and below the mid-June prediction of 8.4%. However, Baird investment strategist Mayfield points out that analysts often lower their profit estimates as earnings reports approach, which can lead to positive surprises and boost stock market performance.
Wall Street will also closely monitor profit margins, with S&P 500 companies expected to report a net profit margin of around 12.9%, down from 13.1% in the second quarter. This decline indicates that some businesses are struggling to pass on rising costs. Energy and real estate sectors are anticipated to post the weakest profits, but overall, many companies are expected to see profit recovery in the coming quarters.
This week, Netflix’s earnings will kick off the tech sector’s earnings reports. A survey from online brokerage Public suggests that retail investor enthusiasm for AI stocks appears to be waning, with only 51.6% of respondents remaining optimistic about AI companies, and just 30.8% planning to heavily invest in AI this year. Bloomberg data indicates that profits from the “Tech Giants”—including Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla—are projected to grow by 18% last quarter, significantly slower than over 30% growth seen last year.
Recent earnings reports from JPMorgan Chase and Wells Fargo imply that the U.S. economy may be on a “no-landing” trajectory, indicating only moderate growth as consumers and businesses start to tighten their spending and loan demand weakens. This week, the market will closely monitor earnings from major financial institutions such as U.S. Bank, Citigroup, Goldman Sachs, and Morgan Stanley to further evaluate the health of consumer and corporate spending.
Investors will also pay close attention to how executives assess the economic and trade policy risks associated with the upcoming November election. A survey conducted by S&P Global in September revealed that U.S. companies are experiencing high levels of uncertainty regarding post-election policies and the business environment, leading them to delay investment and hiring decisions.
LPL Financial’s chief equity strategist, Buchwald, stated that many recent capital investments are related to AI, suggesting that the election is unlikely to have a significant impact. However, some more traditional capital commitments may be postponed due to political uncertainties.
