Wall Street Earnings Season Kicks Off — From Big Banks to the Semiconductor Duo — BigGo Finance

The earnings season for the third quarter is set to commence this week on Wall Street, a period that could significantly influence the trajectory of American equities. Major investment banks are poised to report their results, followed closely by leading semiconductor firms ASML and TSMC. Investors are not only focused on the earnings figures but also on the guidance that companies will provide, especially in light of persistently high interest rates, elevated oil prices, and geopolitical uncertainties stemming from the Middle East.

According to market research firm FactSet, the net income for S&P 500 companies in the third quarter is projected to increase by 29.6% compared to the previous year. If this forecast materializes, it would represent the third consecutive quarter of growth surpassing 25%. Sheraz Mian, director at Zacks Research, emphasized the importance of earnings expectations in bolstering the stock market, noting that while rising interest rates pose a significant challenge, optimistic earnings projections are helping to mitigate that pressure.

The S&P 500 index closed at 7,811.54 on October 9, hovering just below its all-time high. However, the market environment remains challenging. The yield on the U.S. 10-Year Treasury has remained above 5%, and oil and gasoline prices have surged due to the ongoing conflict in Iran. Concerns regarding the fiscal deficit are further complicating valuation pressures. Daniela Hathorn, a senior analyst at Capital.com, pointed out that while corporate earnings expectations are robust, the sustained high yield on the 10-year Treasury continues to raise the bar for equity valuations.

Several major banks are set to report their earnings on October 13, including JPMorgan (JPM), Goldman Sachs (GS), Citigroup (C), and Wells Fargo (WFC). UnitedHealth Group (UNH) and Johnson & Johnson (JNJ) will also release their results on the same day. Following them on October 14 will be Bank of America (BAC), Morgan Stanley (MS), and BlackRock (BLK), while Charles Schwab (SCHW), BNY Mellon (BNY), and U.S. Bancorp (USB) are scheduled to report on October 15.

Bank stocks have experienced a noticeable decline in recent weeks, driven by fears that rising interest rates will dampen loan demand and hinder investment banking and merger and acquisition activities. Over the past month, the Financial Select Sector SPDR Fund (XLF) has been the second worst-performing sector in the S&P 500, falling approximately 4%. The combined market capitalization of the five largest U.S. banks has decreased by around $270 billion.

A survey conducted by Truist Securities revealed that only 35% of institutional investors anticipate that bank stocks will outperform the broader market, a sharp decline from 68% in July and 82% in December of the previous year. Goldman Sachs CEO David Solomon mentioned at a Barclays conference in late September that trading activity in fixed income, currencies, and commodities (FICC) had been "somewhat weaker" compared to the previous year. Morgan Stanley Co-President Dan Simkowitz remarked that the third quarter's performance is "well below" that of the second quarter, thereby lowering expectations for upcoming results.

Keefe, Bruyette & Woods (KBW) noted in a recent report that while the earnings outlook for the banking sector is generally positive, the market's willingness to assign multiples to those earnings remains uncertain. The semiconductor sector also plays a critical role in this week's earnings reports. ASML, a Dutch company specializing in lithography equipment, will announce its results on October 14, followed by Taiwan's TSMC on October 15. Both companies are integral to the supply chain of AI infrastructure investment, making their performance and guidance vital indicators for the sustainability of the global AI investment surge.

Analysts are focusing more on management commentary rather than just the earnings figures. Important aspects to watch include delivery schedules for semiconductor manufacturing equipment, revenue from AI chip production and advanced packaging, and insights on future capacity expansion. FactSet reports that Micron Technology (MU) and Nvidia (NVDA) are among the top contributors to earnings within the S&P 500.

Ken Mahoney, CEO of Mahoney Asset Management, stated that the third-quarter earnings, particularly from technology and large-cap companies, will be crucial in supporting a market that is struggling in many other sectors. With rising oil prices and increasing interest rates putting pressure on valuations, earnings growth will be essential.

In addition to earnings reports, several key economic indicators are scheduled for release this week. The Consumer Price Index (CPI) data for September is expected on October 14, followed by the Producer Price Index (PPI) on October 15. The U.S. 10-Year Treasury yield recently surged to 5.364%, the highest level since 2002, while the 30-year yield reached 5.732%. A recent auction of 30-year Treasuries yielded a high rate of 5.618%, marking the highest since August 2000.

Pimco's Chief Investment Officer Daniel Ivascyn cautioned that the 10-year yield may rise to 6% due to inflationary pressures from high oil prices and growing U.S. public debt. If this occurs, it would be the first time since 2000. Bob Lang, founder of Explosive Options, criticized the market for being "extremely complacent," describing this as a mistake, especially given the sharp increases in both oil prices and interest rates. He warned of significant risks that inflation could rise further.

Citigroup equity strategist Scott Chronert anticipates a split among sectors, suggesting that "half the market riding the AI wave will show revenue trends similar to Q2," while the other half may provide more conservative guidance due to high oil prices and elevated interest rates. Ultimately, the emphasis during this earnings season will be on management commentary rather than the numbers themselves. Mian reiterated that "what management says will matter more than the numbers," as investors seek insights on how rising rates might affect the broader economy.