Third-quarter earnings season commenced with major financial institutions reporting, as market participants assessed whether elevated profit growth expectations could sustain the recent market momentum. Consensus forecasts from FactSet indicated nearly 30% year-over-year earnings growth for the S&P 500, a revision upward from approximately 27% three months prior. The technology sector was projected to deliver particularly strong results, with analysts expecting 65% gains in tech profits, revised upward from an estimated 57% growth in the prior quarter.
Large banks including JPMorgan Chase, Goldman Sachs, Citigroup, and Wells Fargo initiated earnings reports, with particular attention on how elevated interest rates were affecting loan growth, balance sheets, merger activity, and initial public offerings. JPMorgan’s results and commentary from Chief Executive Officer Jamie Dimon were viewed as especially significant for market direction. The financial sector had declined 5% since August 31 and was hovering near its 200-day moving average, a technical support level. Analysts noted that rising rates could pressure loan growth and fixed-income securities on bank balance sheets, though the impact on equity performance remained uncertain.
Beyond banking, technology represented a focal point for the earnings cycle, comprising approximately 40% of the S&P 500 and roughly one-third of its estimated $800 billion in quarterly profits. Taiwan Semiconductor Manufacturing Company’s guidance on chip demand was expected to serve as a key indicator for the broader semiconductor and artificial intelligence sectors. Earnings revisions had turned negative in eight sectors since June 30, led by materials, consumer staples, and health care, according to FactSet data.
Market strategists offered mixed perspectives on the earnings outlook. Goldman Sachs shifted to an “overweight” stance on equities, citing favorable macroeconomic conditions with low recession risk, while UBS forecasted the S&P 500 reaching 8,400 by June of the following year. However, Bank of America noted that after two consecutive quarters of earnings beats, such results had become routine and might be insufficient to drive further stock appreciation. The index was trading at 19 times forward earnings, down from 21 times during the summer months, despite accelerating earnings growth.
Valuation concerns persisted, with Bank of America reporting that the S&P 500 appeared expensive on 17 of 20 valuation measures, implying limited long-term return potential. Additionally, market breadth remained narrow, with nearly 38% of S&P 500 constituents trading 20% or more below their 52-week highs, reflecting concentration of gains in technology and energy sectors while other areas languished.
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