Wall Street Week Ahead: Investors eye ECB policy verdict, US Presidential Election buzz, macro data, Q3 earnings

Wall Street Week Ahead: The US consumer sentiment will come into the spotlight this week, with investors eyeing corporate earnings reports, retail sales data, and jobless claims reports to confirm further the economic resilience that has boosted equity markets this month. As earnings season kicks off, the benchmark S&P 500 is set to post its fifth straight weekly gain and is hovering near a fresh record high after rising over 21 per cent this year.

A string of encouraging macroeconomic data in the world's largest economy has dispelled the slowdown fears that rocked markets during June and July. Among these was a blowout jobs report earlier this month, the latest sign that the economy is maintaining solid growth as the US Federal Reserve cuts interest rates - a historically potent combination for stock market gains.

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Analysts say geopolitical developments and fluctuations in crude oil prices will also be critical to watch this week. Moreover, data from the US, movements in US bond yields, and the US dollar index will be significant factors to consider. Updates from China and Japan, as well as the upcoming European Central Bank (ECB) meeting, will serve as important triggers.

According to news agency Reuters, the Citigroup Economic Surprise Index, which measures how economic data compares to expectations, turned positive this month after being negative since the start of May. More insight will come from additional banks reporting on Tuesday, including Bank of America and Citigroup.

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Wall Street Week Ahead: ECB policy verdict, US Presidential Election buzz, macro data, Q3 earnings

Q3 Earnings: Over 150 S&P 500 companies are expected to report results over the next two weeks. Earnings from American Express, Netflix, United Airlines, Procter & Gamble and several major banks will give a broad view of consumer spending, which accounts for more than two-thirds of US economic activity.  The earnings season kicked off on Friday when shares of JPMorgan Chase and Wells Fargo jumped after both lenders surpassed estimates. 

Strategists are predicting that companies in the S&P 500 Index will post their weakest results in the past four quarters, with just a 4.3 per cent increase in third-quarter profits compared with a year ago, Bloomberg Intelligence data show. In mid-June, projections were for an 8.4 per cent rise; in the second quarter, growth soared to 14 per cent. Despite the shrunken expectations, the S&P 500 hit another record high on Friday and is up 22 per cent in 2024, its best start to a year since 1997.

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US macroeconomic data: Retail sales data is expected on October 17. Expectations have firmed that the economy will avoid a downturn despite a long period of elevated interest rates. Following the employment data, Goldman Sachs, for example, lowered the odds of a US recession in the next 12 months by five percentage points to 15 per cent.

The market outlook will be guided by major global economic data, such as US initial jobless claims, US core retail sales (September), US industrial production (September), China GDP (YoY) (Q3), and UK CPI inflation data.

US Presidential Election Buzz: With the US presidential election only weeks away, investors will be listening for mentions of economic and trade policy risks and other political issues from corporate executives. According to BofA data, about 110 companies mentioned “election“ in their second-quarter earnings calls, up 62 per cent from four years ago.

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European Markets: According to Bloomberg, in Europe, the earnings season could mark a turning point for the Stoxx 600 index, which is hovering near record highs. Analysts cut profit estimates going into the third quarter, with a Citigroup index showing downgrades outnumbering upgrades since mid-June. Regional economies are seeing anaemic growth, and Germany, the manufacturing powerhouse, has forecasted a contraction for a second year.

With inputs from Bloomberg, Reuters