This week, US-listed companies began releasing their third-quarter financial reports. In the current market environment, exceeding expectations in performance is no longer the sole consideration for investors. They are also paying attention to additional information such as the Federal Reserve’s stance and economic data to adjust their positions, with different expectations from various institutions regarding the stock market’s adjustment.
The three major US stock indices all plunged on October 16th. The S&P 500 fell by 1.09% to 7659.44 points, the Nasdaq plummeted by 2.15% to 26140.03 points, breaking below the 50-day moving average, and the Dow Jones Industrial Average slid 175.28 points or 0.34% to 52002.41 points. The Chicago Board Options Exchange (Cboe) Volatility Index (VIX), known as the “fear index,” surged by 21.45% to 19.99 on the 16th, reaching its highest level since the end of July.
The latest economic data shows that consumer prices in September rose more than expected, with the September Consumer Price Index (CPI) adjusted for seasonal factors increasing by 0.6% monthly and 3.7% annually.
On October 16th, Federal Reserve Chairman Kevin Warsh stated during the International Monetary Fund (IMF) meeting in Bangkok, Thailand that the Fed is evaluating whether to raise interest rates again later this month.
Investors are becoming increasingly concerned that the Fed may more aggressively tighten monetary policy before the end of the year, which could have an impact on the stock market.
Meanwhile, the third-quarter earnings season for US-listed companies has kicked off this week, with mixed performances in their financial reports.
For example, UnitedHealth Group’s earnings per share exceeded expectations by nearly 14% and raised its full-year performance guidance. However, the stock price surge stopped as investors shifted focus to cost pressures. In the banking sector, Wells Fargo also exceeded earnings expectations per share but faced pressure due to expanded loan losses and lower-than-expected revenue. Bank of America’s profits and revenues fell short of expectations, leading to a nearly 5% drop in stock price.
In the more widely tracked technology sector, the seven largest tech giants (Nvidia, Apple, Alphabet, Microsoft, Amazon, Meta, Tesla) have been the main driving force behind the US stock market’s rise since late July this year, contributing to 90% of the overall market returns. The combined market value of these companies has exceeded $25 trillion, surpassing the gross domestic product (GDP) of any country outside the United States.
Meta is set to release its latest financial report after the US market closes on the 21st, marking the highlight of next week’s corporate earnings season. Semiconductor companies Lam Research and Texas Instruments, along with Tesla and SpaceX, will also report their latest financial results. Wall Street believes that the growth rate of profits for mega-cloud service providers and semiconductor companies compared to capital expenditures is one of the key focuses of the earnings season.
Investors are closely watching whether the ongoing release of financial reports can continue to support the stock prices at their high levels. Higher interest rates usually compress stock price-earnings ratios (the stock’s price per share divided by its earnings per share, typically used as an indicator of whether a stock is cheap or expensive), reducing the present value of future earnings.
Leading independent investment research firm Morningstar anticipates that non-tech sectors like energy will benefit from surging oil prices and are expected to double their profits. The semiconductor industry driven by artificial intelligence (AI) remains promising, with AI chip manufacturers like Nvidia expected to face supply shortages between 2026 and 2027, and the industry’s total revenue is anticipated to approach $1.7 trillion in 2026.
However, Morningstar also points out that the third-quarter momentum for semiconductor stocks has slowed down, indicating that market expectations are already quite high.
Goldman Sachs upgraded its global stock rating to “hold,” maintained a “hold” rating for US and Asian stocks, and downgraded European stocks to “reduce,” citing the potential boost from strong earnings. JPMorgan Chase stated that this earnings season will uplift the stock market and that corporate profits will provide support to the market.
On October 14th, the Royal Bank of Canada downgraded its rating of US tech stocks to “in line with the market” and upgraded US healthcare stocks to “buy.” Additionally, the Royal Bank of Canada lowered the target stock prices of Goldman Sachs, Citigroup, and Wells Fargo.
A market analysis report from Citadel Securities points out that the coming weeks’ financial reports will be a critical moment to gauge whether corporate profits can support market performance. Especially during the week of October 28th to November 3rd, when about 47% of S&P 500 index weight-bearing companies will report their earnings.
The report suggests that with valuations already compressed and retail buying returning, the market’s ability to continue rebounding will depend on whether companies can meet the high expectations. Currently, overall profit growth is still highly concentrated in a few companies. It is estimated that Micron Technology and Nvidia together contribute 36% to the expected profit growth of the S&P 500 index, with the top ten enterprises accounting for about two-thirds of the total contribution.
Overall, the report believes that conditions for an upward trend in the fourth quarter are present for the US stock market. Strong earnings expectations, a decline in valuations, coupled with retail buying interest, and companies preparing to resume stock buybacks, will strengthen the market’s momentum.