U.S. stocks reach record highs amid earnings

U.S. stocks reached new heights on Monday as investors awaited the next batch of key corporate earnings. The S&P 500 climbed 0.77% to 5,859.85, while the Dow Jones Industrial Average advanced 201.36 points to 43,065.22. Both indices hit all-time highs, with the Dow closing above the 43,000 mark for the first time.

#MarketAlert | US: DJIA closed with 0.1% gains on Friday; S&P 500 closed with gains of 0.4%; Nasdaq up 0.6%#DowJones #Nasdaq #UnitedStatesofAmerica pic.twitter.com/CdOn2iZRsj

— ET NOW (@ETNOWlive) October 19, 2024

Technology stocks led the S&P 500 higher, continuing their upward trend. Investors are particularly focused on upcoming earnings reports, with several major companies expected to release results this week.

#USMarketAtOpen | S&P 500, Nasdaq 100 open flat and other significant updates #CVSHealth #Netflix #IntuitiveSurgical @Nasdaq pic.twitter.com/I08yITQrT2

— ET NOW (@ETNOWlive) October 18, 2024

Early signs of a recovery in banking profits have helped push the broader market to new highs, with the S&P 500 closing above 5,800 for the first time last Friday.

S&P 500 bulls drive the longest weekly winning streak in 2024. On the 37th anniversary of the “Black Monday” market crash, the S&P 500 is up for the sixth straight week. (BBG) pic.twitter.com/4ZwtjmGWpR

— Holger Zschaepitz (@Schuldensuehner) October 18, 2024

So far, 30 S&P 500 companies have reported earnings, surpassing consensus estimates by approximately 5% on average, according to Bank of America. This is an improvement from last quarter’s 3% beat rate. However, some analysts, including those at Bernstein, predict that this quarter’s year-over-year earnings per share growth rate will be lower than the previous quarter.

The ratio of US stocks to International stocks hit another record high this week, extending its streak of outperformance to over 16 years. This is by far the longest period of US dominance that we’ve ever seen.

Video: https://t.co/uXDwE4VDQ5 pic.twitter.com/dDA8ZqanNh

— Charlie Bilello (@charliebilello) October 19, 2024

Despite the market’s recent performance, investors remain cautious amid several uncertainties, including a closely contested presidential election, rising Treasury yields, the Federal Reserve’s policy decisions, and escalating geopolitical risks in the Middle East. All-time highs sentiment is maybe a little stretched, so it wouldn’t be surprising — especially in the last three or four weeks before an election — to see some volatility return,” said Ross Mayfield, investment strategist at Baird. “Over a three- or six-month-plus time horizon we’re still pretty bullish just on the idea of lower rates for the right reason, soft landing in the economy and earnings growth.” The S&P 500 has gained almost 23% this year, excluding reinvested dividends, and the benchmark has rallied about 63% since hitting a closing low in October 2022.

Stocks soar on earnings anticipation

Treasury yields have also risen, with the benchmark 10-year note yield topping 4.1% last week. The bond market was closed on Monday in observance of Columbus Day. Oppenheimer believes the S&P 500 could continue its record-breaking rally as the third-quarter earnings season progresses. “History in our experience has shown that monetary policy, economic conditions, corporate and revenue and earnings growth generally carry more weight in terms of the direction markets might take in the period that follows most national elections rather than the political arguments in the heat of electioneering before the election,” the firm noted. Oppenheimer’s chief investment strategist, John Stoltzfus, added, “The S&P 500’s 45th record closing price of this year suggests to us a market bolstered by economic resilience and healthy earnings growth that may have room to move higher.” Bank of America Securities suggests that the upcoming September retail sales report could bolster the “no landing” narrative, indicating continuous economic expansion despite elevated inflation. Equity and quant strategist Ohsung Kwon believes the data will likely exceed expectations, further encouraging investor confidence. The ‘no landing’ narrative could continue to strengthen if we get blowout retail sales this week,” Kwon wrote. “In a contained inflation environment, the relationship between rates and stocks should be positive.” However, Deutsche Bank’s macro strategist, Henry Allen, warned of rising inflation risks due to several factors, including significant near-term monetary easing by central banks, increased commodity prices, strong U.S. economic data, a hotter-than-expected September CPI report, and accelerating money supply growth. UBS maintains a positive outlook on U.S. equities, expecting strong third-quarter earnings growth, even if it doesn’t match the second quarter’s performance. The bank projects S&P 500 earnings per share growth of 5-7% for the September quarter, compared to 11% in the second quarter, mainly due to lower oil and gasoline prices. UBS’s full-year 2024 earnings growth forecast of 11% remains unchanged. In summary, while the market continues to reach new highs, investors are navigating a landscape filled with both opportunities and risks, including corporate earnings reports, inflationary pressures, and geopolitical uncertainties.