Third-Quarter Earnings Season to Focus on “More Macro” Topics – Evercore ISI

US third-quarter earnings season is about to begin, presenting a crucial moment for a stock market that is trading near record highs and facing high valuations.

Key financial institutions such as JPMorgan Chase, Wells Fargo, and BlackRock are scheduled to report their results on Friday. The performance of these banks provides valuable insights into the economy, particularly regarding loan demand. Investors will be keen to discover if the Federal Reserve’s significant interest rate cut from last month has begun to impact the economy, as evidenced by a rise in auto sales and other major purchases.

Throughout the week, other companies, including PepsiCo and Delta Air Lines, will also release their earnings reports.

Optimistic investors are hoping these results will validate the stock market’s elevated valuations. The S&P 500 has risen 20% this year and is currently trading near all-time highs, despite recent market fluctuations attributed to increasing geopolitical tensions in the Middle East.

In a recent note to clients, analysts at Evercore ISI indicated that the upcoming quarterly earnings will largely focus on broader macroeconomic factors, such as the situation in the Middle East, the upcoming presidential election in the US, and the potential for new stimulus measures from the Chinese government. These issues are expected to amplify macroeconomic uncertainties this earnings season.

The analysts anticipate that growth in third-quarter results will decelerate compared to the previous quarter, which saw earnings per share increase by 11.3%—the fastest growth rate in over two years. Evercore ISI projects earnings per share growth to be around 6.5% for the third quarter, while Wall Street consensus estimates place it at 2.9%.

Strength in earnings is expected to come from sectors tied to artificial intelligence, particularly Information Technology and Communication Services, along with more stable sectors like Health Care and Utilities. The Energy sector, which is more sensitive to economic cycles, may face greater risks. Overall, support from the S&P 493 is predicted to diminish in the third quarter, although it is still expected to be positive, with improvements anticipated in the fourth quarter of 2024 and into 2025.