This Earnings Season Could Take a Turn
The Weekend Edition is pulled from the daily Stansberry Digest.
The market started off gloomy on Tuesday...
Headlines were still all about the trade war with China. That included comments from U.S. Treasury Secretary Scott Bessent to the Financial Times that China wants to "pull everyone else down with them."
The major U.S. stock indexes opened lower that day. The benchmark S&P 500 Index was down by as much as 1.5%.
But after the first 15 minutes of trading, stocks began to reclaim their early losses...
And a few hours later, the indexes turned positive. Federal Reserve Chair Jerome Powell outlined in a speech that the central bank should soon stop reducing its balance sheet... and that it could happen "in the coming months."
This would mark a big shift... ending the central bank's multiyear run of "quantitative tightening." It has reduced its bond holdings by about $2.2 trillion since early 2022, after inflation took off to a 40-year high.
It was a sign of hope for investors. But then, late in the trading day, President Donald Trump criticized China on social media once again.
That pushed the S&P 500 slightly into the red... closing the book on an up-and-down day.
As the week continued, we saw more days of mixed emotions and choppy action. And the ride likely isn't over yet...
The short-term path ahead could be "messy"...
Even if stocks move higher again, it likely won't be a straight shot up in the weeks ahead. That was the update from Ten Stock Trader editor Greg Diamond to his subscribers on Tuesday.
Greg shared the following chart, which shows that Monday may have marked a lower high for the S&P 500 Index...
He also mentioned earnings season and the next Fed meeting at the end of this month as two possible catalysts that could make for a "messy few weeks" for U.S. stocks.
Growing Concerns Despite a Strong Start to Earnings Season
Speaking of earnings season...
About 10% of the S&P 500 released quarterly financial results this week. That started Tuesday with America's big banks...
That morning, JPMorgan Chase (JPM) beat Wall Street's estimates for both revenue and earnings per share ("EPS"), with the latter up 12% year over year. JPMorgan's investment-banking revenue set a record for the third quarter, while Chase debit- and credit-card spending was up 9% year over year.
Elsewhere in the banking sector, Goldman Sachs (GS) also benefited from an ongoing boom in trading, with investment-banking revenue jumping 42% in the quarter. And Citigroup (C) reported record revenue across all three of its segments.
So, on the surface, the banking sector has made for a strong start to earnings season. The market agreed...
The Financial Select Sector SPDR Fund (XLF) rose roughly 1.5% on Tuesday, and financials outperformed most other major S&P 500 sectors.
Where the concerns are...
In a prepared statement released with his company's report, JPMorgan CEO Jamie Dimon said that the U.S. economy has "generally remained resilient" in the face of challenges like a slower labor market. But he doesn't believe we're in the clear just yet. He said...
There continues to be a heightened degree of uncertainty stemming from complex geopolitical conditions, tariffs and trade uncertainty, elevated asset prices and the risk of sticky inflation.
One metric shows that JPMorgan is preparing for some pain in its consumer division. Provisions for credit losses – money JPMorgan sets aside for loans it doesn't believe will be paid back – rose to $3.4 billion in the third quarter.
That's the highest level since the second quarter of 2020 – when they peaked at $10.5 billion. We're still a long way from that number today. And JPMorgan is being more conservative than the other banks.
Both Citi and Wells Fargo (WFC), which also released quarterly results on Tuesday, reported declines in provisions for credit losses.
But it's notable that one of the world's largest banks is seeing exactly what we're seeing – consumer debt is becoming a troubling piece of the economy. As we wrote in the October 8 Digest...
In August, the average credit-card interest rate came in at 21.4%. That's down slightly from the high of 21.8% we saw in August 2024, but it's well above the 14.6% we saw in 2021.
And with credit-card delinquencies at their highest level since 2011, folks are both falling behind and having to pay more in interest on their late payments.
Looking ahead to the rest of the reports...
Overall, Wall Street analysts expect the S&P 500's EPS to grow by 8% in the third quarter. Some other predictions, like from FactSet, are even more optimistic – estimating that the S&P 500's EPS will rise by 13% for the third quarter.
Either way, the Magnificent Seven will likely be the largest contributors to that growth...
In the first two quarters of 2025, the S&P 500 grew EPS by 13% and 12%, respectively. That growth was dominated by the Mag Seven names – which grew their EPS by an average of 27.7% and 26.6% in those two quarters, respectively.
The other 493 companies "only" grew their earnings by 9.4% in the first quarter and 8.1% in the second quarter – both below the broader index's growth rate.
And that's likely to continue for the next few quarters. Just take a look at this chart from FactSet...
The first Mag Seven earnings will start rolling in next week. And we'll be watching.
As the market-cap-weighted S&P 500 has become more concentrated in a handful of AI winners, the more important these earnings reports get – for better or worse.
And as our colleague Mike Barrett told his Select Value Opportunities subscribers in an October 1 weekly update...
With third-quarter earnings about to begin rolling out, we expect investors will punish any company that doesn't meet their lofty expectations.
That's especially true when it comes to the high hopes surrounding the Mag Seven stocks. So be picky about where you're putting new money to work.
Good investing,
Corey McLaughlin and Nick Koziol
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