Mixed S&P 500 Results Set Stage for ‘Magnificent Seven’

Highlights

• Financial sector shows resilience, led by Bank of America and Charles Schwab.
• Airlines and financials like Goldman Sachs and Morgan Stanley face earnings headwinds.
• “Magnificent Seven” under spotlight as high valuations add pressure.

Third-Quarter U.S. Earnings Season Ramps Up

The U.S. earnings season for the third quarter has shifted into high gear, with investors and traders eagerly watching each announcement. According to recent LSEG data, S&P 500 companies are estimated to show a 2.2% year-over-year earnings increase for the quarter. As some of the most influential companies across various sectors such as finance, tech, and healthcare step up to reveal their financial health, the data released will inevitably set the stage for market movements in the closing months of the year.

Upbeat Earnings

There’s good news for those bullish on the financial sector. Bank of America’s stock gained 2.3% after beating quarterly expectations, propelling the S&P 500’s financial sector upwards by 0.6%. Charles Schwab also gave investors reason to smile with a 4.7% share price increase, as the brokerage posted a smaller-than-expected decline in quarterly profits. Procter & Gamble’s stock rode a similar wave, gaining 2.6% after it surpassed market expectations for quarterly sales. These performances hint at an undercurrent of resilience in various sectors, despite broader market volatility.

Downbeat Earnings

However, it hasn’t been smooth sailing for everyone. Goldman Sachs, a major player in the financial world, saw its shares fall by 1.6% despite a less severe drop in third-quarter profits than analysts had feared. United Airlines took a more significant hit, with its stock plummeting by 9.7% due to a pessimistic outlook for fourth-quarter profits, thereby affecting the S&P 500 passenger airlines index which dropped by 5.6%. Morgan Stanley had a tough day as well, with its shares closing 6.8% lower due to sluggish deal-making activities. Blackstone, the world’s largest manager of alternative assets, also reported a steeper-than-expected 12% year-on-year decline in distributable earnings.

Future Earnings

Looking ahead, market participants are directing their attention to the “Magnificent Seven”—Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, and Meta Platforms. These giants have been the primary drivers of the S&P 500’s 12% gains this year. However, with their average forward P/E ratio standing at a lofty 33.5, compared to the S&P 500’s 18.3, the pressure is on for these behemoths to deliver robust earnings, especially as rising bond yields make equities less attractive.

Closing Thoughts

In a nutshell, the current earnings season has revealed a mixed bag of results that are shaping market sentiment in real-time. While there have been notable bright spots providing a bullish outlook for certain sectors, downbeat performances act as a cautionary signal.

The forthcoming earnings from the market’s top performers are set to play a crucial role in steering market sentiment and trends. With valuations high, the stakes are elevated, making the next wave of corporate earnings releases even more critical in shaping the market’s end-of-year narrative.