Dow Jones, Nasdaq, S&P 500 weekly preview: Focus on Middle East, CPI and Q3 earnings

The S&P 500 () closed 0.5% higher after a strong rally on Friday, following the release of the jobs data for September. Stocks rallied as the report shows that wage growth continues to slow down, fueling optimism that the Fed may not have to hike again.

However, the U.S. stock index futures slid on Monday after Hamas’s surprise attack on Israel over the weekend, which sent global markets into risk-off mode.

“The conflict’s course is uncertain, but will very likely escalate, possibly contributing to a significantly risk-off global environment over the next 1-3 months,” wrote the Chief Geopolitical Strategists at Alpine Macro.

Elsewhere, the Dow Jones Industrial Average () fell 0.3% despite stocks rallying sharply on Friday. The index still closed below its 100 daily moving average.

On the other hand, the Nasdaq Composite Index () rose as much as 1.6% as tech stocks led the rally on Friday.

CPI and Earnings in Focus

On the economic data front, and data are out on Wednesday, followed by the release of the . Thursday will see the release of the latest inflation figures, which is the key highlight of the week.

“We forecast headline and core CPI increased by 0.3% m/m (0.25% unrounded) and 0.2% m/m (0.24% unrounded) respectively. Used car prices should drive a decline in core goods prices, while shelter should continue to boost core services,” BofA economists said in their CPI preview.

The third quarter earnings season is about to start later this week the major U.S. banks set to report on Friday.

According to consensus estimates, there is an expected 2% growth in sales, a 55 basis point (bp) margin contraction to 11.2%, and flat earnings per share compared to the previous year. Excluding the Energy sector, S&P 500 earnings are anticipated to grow by 5%.

Goldman Sachs strategists reiterated the bank’s S&P 500 EPS estimate of $224 (+1% growth) for 2023 and $237 (+5% growth) for 2024.

“We forecast S&P 500 EPS will grow by 5% in 2025 to $250. Near-trend economic growth and moderating inflation pressures will support modest sales growth and slim margin improvement. However, substantial margin expansion is unlikely given the ‘higher for longer’ interest rate regime, resilient wage growth, and AI investments among some tech firms,” they said.

What analysts are saying about US stocks

Evercore ISI analysts: “Equities are decidedly mixed into 3Q23e earnings seasons as Sept/Oct seasonality coupled with surging bond yields have pressured valuations. But has the correction run its course as the S&P 500 holds its 4,200 200DMA, and long-end yields remain below 5%? That could provide an opportunity to add exposure to structural growth themes which have driven Equites over the long term.”

“We suspect we will get to a point where we can safely say pessimism has gotten deeply negative before too long. For reference, when this indicator [AAII survey of individual investors] falls to more than one standard deviation below it’s long-term average, the S&P 500 has tended to rise by more than 8% over the next 12 months.”

JPMorgan analysts: “If bond yields roll over, will it help equity valuations? Not if yields are peaking at the time when earnings, and the broader economy, start to disappoint. Equity-bond yield gaps show that only Japan is displaying attractive cross asset valuations, at this stage – we stay cautious.”

Wells Fargo analysts: “In a sharply rising rate environment we would expect larger-cap secular Growth (quality) not Value/cyclicals (economic/leverage problems) or unprofitable firms (funding issues) to perform best. Factor-wise, ‘leverage’ remains an issue.”

BTIG analysts: “While stocks still have more downside and have yet to show full capitulation, in our view, bonds have shown signs of a washout with last week being the heaviest volume week in TLT’s history. We continue to believe we are entering a period where the bond/stock correlation will flip and we will see rates fall with stocks.”