Wall Street Looks for Big Earnings Week to Shed Credit, U.S.-China Trade Woes

Wall Street heads into a big week of earnings and data highly sensitive to headline risks. (AFP via Getty Images)

Key Points

• S&P 500 earnings are projected to increase by 9.3% from last year’s third quarter, reaching approximately $574.4 billion.
• The Cboe Group’s VIX index decreased by 14% from last Friday’s close, trading below the 20-point mark.
• Economists anticipate the core consumer price inflation to remain elevated at an annual rate of 3.1%.

U.S. stock markets are looking to shed some of last week’s credit concerns, which overshadowed a solid start to the third quarter earnings season, and focus on a busy slate of profit updates and data releases that could underpin performance over the final stretch of the year.

Investors added a healthy 1.7% to the S&P 500 last week, paring the benchmark’s October decline to around 0.4%, following a series of better-than-expected earnings for Wall Street’s biggest banks and dovish signaling on interest rates from Federal Reserve Chairman Jerome Powell. Monday’s advance of around 1.07% puts the S&P 500 just 20 points south of the all-time peak it reached on Oct. 8.

The gains were more impressive, however, in that they powered through some worrying headlines in private credit holdings that stoked concerns over opacity in the $2 trillion market and triggered the biggest jump in volatility readings since the tariff turmoil of early spring.

Investors have a chance to put those concerns, which were assuaged in part by solid earnings reports and credit market commentary from a host of regional lenders on Friday, firmly behind them this week.

Around 89 S&P 500 companies will report earnings this week, including Tesla, Netflix, Intel and International Business Machines.

Following last week’s updates, LSEG forecasts suggest collective S&P 500 profits are likely to rise 9.3% from last year’s third quarter to around $574.4 billion. That’s a $4.2 billion improvement from early October forecasts.

Broader market volatility, however, is likely to remain a feature for investors as they navigate this week’s earnings slate, and next week’s calendar of megacap tech updates and a Federal Reserve rate decision.

The Cboe Group’s VIX index was last marked 14% lower from last Friday’s close, and trading south of the 20 point mark that generally separates placid markets from turbulent ones.

Monday’s closing level of 18.23 suggests options traders are expecting daily swings of around 1.14%, or 77 points, for the S&P 500 each day over the next month.

Headline risks tied to U.S. China trade talks are likely to keep investors on edge, as well, following comments from President Donald Trump that the current tariff situation between the world’s two largest economies was “not sustainable.”

Treasury Secretary Scott Bessent will meet with China Vice Premier He Lifeng later this week in Malaysia, where the two will map out conditions for a sit-down between Trump and China President Xi Jinping later this month in South Korea.

Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets, thinks the trade and credit headwinds “may end up being catalysts that spark the five- 10% tier one drawdown in the S&P 500 that we have been on guard for between now and the end of the year.”

Friday’s delayed consumer price inflation report, which was selected for publication amid the federal government shutdown in order to allow for the calculation of social security payments, is expected early Friday.

Economists expect tariff pressures to keep headline and core readings elevated, with the latter likely to hold at an annual rate of 3.1%, but neither is likely to throw the Fed off of its rate cutting path.

The CME Group’s FedWatch tool suggests markets are pricing in two quarter point reductions between now and the end of the year, taking it to between 3.5% and 3.75%. Traders also see the Fed Fund rate at between 2.75% and 3% by September of 2026.

The tailwind of lower Fed rates, rising corporate earnings tied to the artificial intelligence investment boom, and growth-friendly tax policies from the One Big Beautiful Bill Act are likely the three key pillars to stock performance into the end of the year and beyond.

“October has brought a spooky gut check after an unusually calm stretch,” said Keith Lerner, chief market strategist at Truist. “But the primary uptrend remains intact, and we view deeper pullbacks as opportunities.”

“Stay focused on the primary trend, stay diversified, and don’t let the headlines haunt your long-term strategy,” he added.

Write to Martin Baccardax at martin.baccardax@barrons.com