What You Need to Know: Earnings Update, Upcoming Mag 7 Reports and Market Themes

Earnings Update – Metrics Slip       

In the latest FactSet Earnings Insight report, 37% of S&P 500 companies have announced earnings. 75% of those companies who have reported beat consensus EPS expectations, which is currently below the 78% one-year average and the five-year average of 77%. In aggregate, companies are reporting earnings that are 5.7% above expectations, better than the 5.5% one-year average positive surprise rate but below the five-year average of 8.5%. Bank of America’s earnings tracker has noted cyclical names are citing sluggish demand with an increase in mentions of the word “bottom”. RBC categorized so far that this earnings season metrics to be mildly disappointing. Additionally, had pointed out a mixed macro backdrop, a waiting game for rate relief, softness from China, stable consumer, continued pricing power and still sticky inflation.

The Week Ahead – Current Events and Economic Themes

Key dynamics this morning include a significant drop in oil prices after Israeli strikes over the weekend were limited to military targets, sparing oil and nuclear facilities. Despite lower oil prices, Treasury yields remain high due to concerns about growth, Federal Reserve policy, and political factors, including fiscal concerns and immigration issues. Market pricing now reflects a reduced expectation of Fed rate cuts (down 75 basis points over six weeks). Focus has also shifted to Japan, where the ruling LDP coalition lost its lower house majority for the first time since 2009, raising uncertainty around potential Bank of Japan tightening initially expected in December.

The week ahead brings several critical events: peak Q3 earnings reports (representing ~40% of the S&P 500 market cap, including five of the “Mag 7” tech giants), October employment data affected by strikes and weather, Tuesday’s JOLTS report (seen as potentially more informative than the non-farm payroll report), and upcoming elections. Additionally, there may be tax-loss selling by mutual funds approaching their fiscal year-end this Thursday. However, strategists anticipate a positive market influence from the resumption of corporate buybacks, seasonal market trends, and the unwinding of election-related hedges, potentially supported by a pullback in the VIX.

This Week Earnings Highlight – 5 of Mag 7 Names Report

This week AI and capex will be in focus with Alphabet (GOOG) AMC Tuesday, Meta (META) and Microsoft (MSFT) AMC Wednesday, Apple (APPL) and Amazon (AMZN) Thursday AMC. EPS expectations for the group are thought to be the slowest EPS growth in six quarters which has become increasingly subdued in recent months. AI will continue to be spotlighted as the key theme with a focus on revenue for Google Search, Meta’s ad businesses, AI demand related to cloud providers, engineering productivity/cost savings growth, and Apple’s AI-enabled iPhone demand. Pressure is increasing on these