Stocks started the day on a positive note as major US banks reported robust earnings. This report comes while the ongoing conflict in Middle East between Israel and Palestine weighed on investors’ minds, creating a sense of caution in the market.
“The Dow Jones Industrial Average (^DJI) saw a 0.6% increase, equivalent to approximately 200 points, and the S&P 500 (^GSPC) rose by nearly 0.5%.
In contrast, the tech-focused Nasdaq Composite (^IXIC) experienced a more modest gain, with an uptick of around 0.2%.”
Q3 earnings season begins, signs of optimism for earnings growth
Major Wall Street banks officially kicked off the third-quarter earnings season on Friday.
For the first time this year, Wall Street analysts anticipate that earnings growth will not be in the negative territory.
According to Bank of America’s equity strategy team, the second quarter marked a “trough” with a 6% decline in earnings.
In a research note, BofA strategists Ohsung Kwon and Savita Subramanian expressed optimism, stating that the situation is set to improve from this point.
It’s worth noting that the consensus among analysts doesn’t paint a picture of robust earnings growth for the third quarter.
Instead, expectations are centered around relatively flat earnings compared to the previous year’s period.
Looking ahead to the fourth quarter, Wall Street anticipates a more favorable scenario with a projected earnings growth of around 9%. This suggests a cautiously optimistic outlook as businesses continue to navigate economic challenges.
Earnings season focus: Delta’s stock decline, major financial institutions post strong profits
In addition to the ongoing developments, attention was focused on the third-quarter earnings season.
Delta (DAL) saw its stock decline by more than 2% after the company adjusted its profit forecast, citing the impact of increasing fuel costs.
Looking ahead, the earnings spotlight is set on some of the nation’s major financial institutions, including JPMorgan (JPM), Citi (C), Wells Fargo (WFC), and BlackRock (BLK), all scheduled to release their earnings on Friday.
In a robust performance, Wells Fargo (WFC) and JPMorgan (JPM) reported profits exceeding expectations.
Economic risk warning
These results will be scrutinized to gauge the banks’ readiness for the Federal Reserve’s prolonged higher interest rates. Also, this will assess whether a two-year decline in dealmaking is beginning to reverse. Investors are keen to gain insights into these critical aspects.
Just recently, JPMorgan Chase CEO Jamie Dimon issued a cautionary warning regarding the potential of interest rates surging up to 7%.
He expressed concerns that individuals and institutions within the financial world may face significant exposure due to excessive risk-taking during period of low interest rates.
In his words from last month, he emphasized the global unpreparedness for such a scenario. He likened it to a metaphorical tide receding, highlighting the potential challenges in a higher interest rate environment.
Dimon’s remarks are a stark reminder of the risks of rapidly changing economic conditions.
Conflict in Middle East impacts markets
The return action in the conflict in Middle East after Hamas attacks on Israel worsened the situation further.
Amid indications of an imminent ground assault in Gaza by Israel, the 10-year Treasury yield (^TNX) witnessed a 10-basis point decline.
However, this decline was followed by an increase in bond yields and a halt to a four-day winning streak in the stock market, all in response to data revealing persistent US headline inflation.
Within the commodities market, oil prices remained relatively stable, with a sense of fragility prevailing as Israel assembled forces in anticipation of a ground assault in Gaza.
Crude oil futures (CL=F) remained stable at approximately $83.50 per barrel. In contrast, Brent crude futures (BZ=F) slightly increased, trading above the $86 mark.
Steady inflation and oil price surge amid Middle East conflict
The Consumer Price Index (CPI) report from Thursday revealed that headline inflation remained steady in September, with prices rising slightly faster than economists anticipated.
In September, consumer prices increased by 3.7% compared to the previous year, aligning with August.
Additionally, on a month-to-month basis, consumer prices saw a 0.4% increase.
Oil prices surged in response to the escalating conflict in Middle East and the United States’ decision to impose stricter sanctions on crude sales to Russia on Thursday.
Crude oil futures (CL=F) recorded a substantial 3.7% increase, while Brent crude futures (BZ=F) saw a significant rise of 3.6%.