Why Earnings are So Important for the State of the Markets This Week

Shah Gilani Oct 12, 2020

With only 22 days left until the election of maybe a lifetime, equity markets, as nervous as they were, are now almost irrationally exuberant.

And while equities may get tested this week because of everything that’s going on, the tone and tenor of the market is bright and strong.

But, we’ll see how that holds up when third-quarter earnings reports start rolling out…

Here’s what to look forward to this week…

On the Radar This Week

Right up front, we get to see how JPMorgan Chase & Co. (NYSE:JPM), The Goldman Sachs Group Inc. (NYSE:GS), Citigroup Inc. (NYSE:C), Wells Fargo & Co. (NYSE:WFC), and several second-tier banks make out this week.

We’ll see how airlines like Delta Air Lines Inc. (NYSE:DAL) and United Airlines Holdings Inc. (NasdaqGS:UAL) are holding up – or not.

And we’ll see how some healthcare companies are weathering or wearing the coronavirus calamity, when Johnson & Johnson (NYSE:JNJ) and UnitedHealth Group Inc. (NYSE:UNH) report.

Earnings are the most important determinant of where stocks are headed, but this week everyone’s going to be hanging on stimulus talks, too.

I’ll give you a heads-up on that, don’t worry. Nothing’s happening until after the election. And judging by how the market’s behaving, it doesn’t care. The market only cares we get a boatload of stimulus eventually.

Apple Inc. (NasdaqGS:AAPL) got good news when a judge just said it didn’t have to sell Epic Games’ Fortnite on the iPhone Apps Store. The stock’s been trying to lead the big tech names back into their market leadership position, and so far, it’s making a decent job of it.

That might change this week when the new 5G iPhone is introduced on Tuesday. If investors like what they see and hear, the stock could break out to the upside and take its mega-cap buddies higher with it.

Tuesday also delivers the Consumer Price Index for September. It’s expected to rise 1.4% year-over-year; August’s rise was 1.3%. The core index (ex-autos and energy) is expected to rise 1.8%, the same as August’s rise. A much steeper rise in CPI could cause some bond selling, so be prepared for that.

Wednesday we get PPI for September, it’s expected to come in at +0.2% versus 0.3% in August.

Thursday, we get initial and continuing claims, which are always important, but have at least been trending in the right direction.

Friday, we get the University of Michigan Consumer Sentiment number for October. The forecast is for 80.8 versus 80.2 for September.

As if all that’s not enough, there’s more.

The nomination process for the vacant Supreme Court seat gets going this week, and we’ll be inundated with polls and political pandering all week.

The short story on all the data points and every other kind of touchpoint we’re negotiating this week is… equities probably don’t care about anything other than earnings, and even then, they’re going to be looking for beats and reasons to buy.

It’s going to be a busy week, stay on the buy side, unless or until we get any devastating news, probably from left field if it’s coming from anywhere.

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