Third-quarter earnings season commenced with major financial institutions reporting results, featuring consensus forecasts for nearly 30% year-over-year profit growth in the S&P 500, up from around 27% three months prior. The technology sector was expected to deliver particularly strong results, with analysts projecting 65% gains in tech profits, increased from an estimated 57% growth in the prior period. Profit growth was also broadening beyond the largest technology companies, with the remaining 493 stocks in the S&P 500 forecast to deliver 27% year-over-year gains, surpassing the Mag-7 average.
Large banks including JPMorgan Chase, Goldman Sachs, Citigroup, and Wells Fargo initiated the earnings reporting cycle, with particular attention focused on how rising interest rates were affecting loan growth, balance sheets, and deal-making activity. The financial sector faced headwinds, having declined 5% since August 31 and hovering near its 200-day moving average. Meanwhile, the technology sector accounted for approximately 40% of the S&P 500 and roughly one-third of its estimated $800 billion in profits for the quarter, with Taiwan Semiconductor Manufacturing Company’s report expected to provide key signals about chip demand trends.
Market strategists remained generally optimistic about equity prospects despite recent volatility. Goldman Sachs shifted to an “overweight” stance on equities, citing supportive growth conditions and low recession risk. Valuation metrics had compressed, with stocks trading at 19 times forward earnings compared to 21 times over the summer, though Bank of America noted the index appeared expensive on 17 of 20 valuation measures. UBS forecast the S&P 500 would reach 8,400 by June next year.
However, concerns emerged regarding market breadth and sustainability. Nearly 38% of the 504 stocks in the S&P 500 were trading 20% or more below their 52-week highs, signaling narrow market leadership concentrated in technology and energy sectors. Additionally, eight sectors had experienced negative earnings revisions since June 30, led by materials, consumer staples, and health care. Analysts cautioned that consistent earnings beats, which had become routine since mid-2023, might no longer provide sufficient impetus for continued market gains.
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