Third-Quarter Earnings Season Is Here—What You Need to Know

A trader works on the floor of the New York Stock Exchange on Aug. 6, 2024. AP Photo/Richard Drew

Wall Street registered sharp losses heading into a week filled with third-quarter earnings reports and key economic data.

The leading benchmark indexes slumped, led by the 1.18 percent decline in the tech-heavy Nasdaq Composite Index. The blue-chip Dow Jones Industrial Average erased nearly 400 points, or 0.94 percent, while the benchmark S&P 500 Index dropped 0.96 percent.

Investors will comb through a wave of third-quarter earnings reports and economic news that could offer fresh insights into the underlying health of the stock market and the broader U.S. economy.

PepsiCo Commences Latest Earnings Season

PepsiCo kicked off the market’s week of revelations, sliding about 0.6 percent in pre-market trading after the company trimmed its forecast for annual sales growth. The packaged-food titan anticipates fiscal 2024 organic sales to advance by a low single digit, down from the previous projection of 4 percent.

CEO Ramon Laguarta attributed the changes to “the cumulative impacts of inflationary pressures and higher borrowing costs” that have forced U.S. consumers to curb their consumption patterns. The shift has included shoppers buying smaller packages and patronizing mass retailers rather than convenience stores.

Still, Laguarta notes that “strong cost controls” helped the company post profits in the last three-month period.

Later this week, other major companies will deliver their third-quarter earnings results to shareholders.

Delta Air Lines and Domino’s Pizza will release earnings on Oct. 10.

Jay Woods, the chief global strategist at Freedom Capital Markets, says the airline’s previous earnings reports have not been favorable.

“Despite the solid yearly performance and record levels of air travel this calendar year, plus the most amazing lounges in the world, earnings reactions have been far from favorable,” Woods said in a note emailed to The Epoch Times. “In fact, shares have traded lower after its last seven reports.”

All Eyes on Financials

Oct. 11 will also be a crucial day for the financial markets, as the big banks, including Bank of New York Mellon Corp., BlackRock, JPMorgan Chase, and Wells Fargo, will post their earnings.

According to estimates from FactSet, the financials sector is projected to post a 0.4 percent year-over-year earnings drop for the third quarter.

“All told, third-quarter bank results look to be a mixed bag, but seeded with multiple reasons for the market to look through near-term negatives, and ahead to potentially more positive conditions (and results) in 2025,” said Sean Ryan, the vice president and associate director for the banking and specialty finance sector at FactSet, in a note.

Sluggish net interest income, mixed non-interest revenues, and credit should remain headwinds, Ryan noted.

JPMorgan Chase has surged more than 22 percent so far this year, even after modest declines following its first three quarterly reports of 2024. Shares have risen more than 1 percent ahead of its earnings report, and Woods thinks there is more room for growth.

Signage at the JPMorgan Chase & Co. headquarters in New York City, on June 30, 2022. Andrew Kelly/Reuters

“So watch for a potential rally into Friday’s numbers. Technically, the stock remains in a long-term uptrend, but upside momentum seems to be slowing,” he added.

Traders will also monitor data center operator Applied Digital. Last month, shares rallied as much as 60 percent after it was confirmed that Nvidia and other investors would inject $160 million into the firm.

Economic Data Also in Focus

Key economic reports will complement earnings seasons later in the week.

According to the Federal Reserve Bank of Cleveland’s Inflation Nowcasting model, the September annual inflation rate is expected to decelerate to 2.3 percent. The core Consumer Price Index (CPI), which strips the volatile energy and food categories, is anticipated to slow to 3.1 percent.

The October CPI is seen rising back to 2.5 percent amid higher energy prices and elevated shelter costs.

Jim Nelson, a chartered financial analyst at Euro Pacific Asset Management, says the better-than-expected September jobs report supports the view that “inflation will persist above market expectations.”

“The September wage growth of 0.4 percent month over month, annualizing to 4.91 percent, is further proof that inflationary pressures are not going away,” Nelson said in a note. “With wages increasing, it’s likely that inflation will continue its climb, particularly in an economy where consumer demand remains strong.”

Last month, the U.S. economy added 254,000 new jobs, and unemployment ticked lower, to 4.1 percent.

Producer prices are projected to be mixed. The consensus estimate for the Producer Price Index (PPI)—a measurement of prices paid for goods and services by businesses—is a tepid dip to 1.6 percent year over year. Core wholesale prices are projected to climb to 2.7 percent from a year ago.

The Fed will also publish minutes from the September Federal Open Market Committee (FOMC) policy meeting on Oct. 9. The summary will provide a detailed look at officials’ justification for last month’s super-sized interest-rate cut of 50 basis points.

Fed chair Jerome Powell and his colleagues’ policy decision to kick off the new easing cycle with a jumbo rate cut could reignite inflationary pressures, Nelson says.

“This move is likely to fuel additional inflationary pressures as borrowing costs fall and liquidity increases,” he said.

Torsten Slok, the chief economist at Apollo, believes interest rates will stay higher for longer.

“And now the Fed is cutting rates, which is boosting growth and inflation further,” Slok said in a note emailed to The Epoch Times. “Combined with very easy financial conditions, the bottom line remains that rates will stay higher for longer.”

The futures market ostensibly disagrees. According to the CME FedWatch Tool, the Fed is expected to cut interest rates by another half-point at the November meeting.

At the same time, U.S. Treasury yields have rocketed in recent weeks. The benchmark 10-year yield topped 4 percent during the Oct. 7 session for the first time since August.

A lower-rate climate typically benefits stocks, but due to the lagged effects of monetary-policy adjustments, it could take time for the easing of monetary policy to filter through the equities arena. As a result, because the Fed started cutting late in the previous quarter, the effects might not be felt until the fourth quarter or even in the first three months of 2025.

Based on forecasts from industry analysts, FactSet projects that the S&P 500 will realize a 9.4 percent price increase over the next 12 months.