Morning in New York: Earnings Reports Will Test the Sustainability of the AI Stock Rally

A daily review and forecast of events in the U.S. stock market by Mikhail Denislamov, Deputy Director of Capital Markets Research at Freedom Broker.

The main focus for the investment community remains the recovery of the AI sector following last week’s sell-off. Yesterday’s rebound was driven by the largest companies, but demand outside of them remained weak. For growth to continue, confident forecasts from corporate management and stabilization of AI companies’ bond prices are crucial. The high cost of debt continues to limit the capabilities of data center operators, so even strong business results may not be enough to ensure a sustained recovery in stock prices.

At 8:15 a.m. Eastern Time (ET), ADP will release its weekly employment report, and at 8:30 a.m. ET, housing starts data for September will be released. We expect housing starts to rise 2.3% month-over-month and building permits to increase 0.2% (consensus: +1.6% and –1.3%, respectively). If our forecast is confirmed, homebuilder stocks will receive a boost. However, it is too early to speak of a sustained recovery in demand: the October NAHB survey showed a deterioration in sentiment. At 10:00 a.m. ET, the Pending Home Sales Index for September will be released (consensus: −0.5% MoM, August: +0.3%).

Yields on 10-year Treasuries remain above 5.1% following yesterday’s rise. Brent crude is trading around $110 per barrel. Stock markets in the Asia-Pacific region were mostly down, with South Korea’s KOSPI losing about 3%, as semiconductor manufacturers came under pressure once again. Despite reports of diplomatic talks regarding Iran, risks of supply disruptions through the Strait of Hormuz persist. High oil prices are fueling inflation fears and dampening risk appetite. Fed officials are observing a “blackout period” ahead of the October 27–28 meeting.

Before the start of the main trading session, GE Aerospace (GE), RTX (RTX), General Motors (GM), and 3M (MMM) will report their earnings. After the market closes, Netflix (NFLX), SpaceX (SPCX), and Intuitive Surgical (ISRG) will release their financial results. In Netflix’s report, the most important points will be revenue trends and forecasts; in Intuitive Surgical’s release, the key metric will be growth in the number of procedures; and for SpaceX, the most significant metrics will be capital expenditures and cash flow.

S&P 500 futures are trading without any significant movement, but are outperforming Nasdaq-100 futures. We assess the risk balance as neutral and expect elevated volatility to persist. Demand for tech stocks remains uncertain, and high Treasury yields and expensive oil continue to put pressure on stock prices. For a more confident assessment of the recovery, it is important to see a broader participation of stocks in the rally, rather than just a continued rebound by technology leaders. We expect the S&P 500 to fluctuate between support at 7,600 points and resistance around 7,750. A sustained move above this zone will improve the technical picture, while a break below support will increase the risk of a further correction.

— 3M (MMM) rose 4% on news that Amazon (AMZN) had received a seven-year warrant to purchase up to 3.16 million shares of 3M at $164.89. The grant of rights to 85% of the stake is tied to purchases of products for data centers and is contingent on aggregate payments totaling $6 billion. This amount is a condition of the warrant, not a guaranteed order. In addition, 3M announced a partnership with Taiwan-based Genius Electronic Optical (GSEO) to develop optical connections for data centers, acquiring approximately 4.7% of the partner’s shares.

— According to Reuters, OpenAI has stepped up negotiations to raise approximately $30 billion ahead of Anthropic’s IPO, expected in November. The ChatGPT developer’s valuation under discussion could exceed $1.4 trillion. Negotiations are ongoing, and the funding round has not yet been finalized.

— Shares of Tradeweb Markets (TW) rose 1% following the announcement of its acquisition of the Trumid electronic bond trading platform for approximately $1.97 billion. The transaction, which will be discussed with investors today at 8:30 a.m. ET, is scheduled to close in the first half of 2027. The company expects to see an increase in adjusted earnings per share (EPS) in the first full year following the acquisition. The acquisition will expand Tradeweb’s capabilities in the corporate debt market.

— Crown Holdings (CCK) shares fell 3.4% in response to the company’s cautious outlook for the current quarter, projecting adjusted EPS in the range of $1.63–1.73, compared to a consensus estimate of $1.79. The third-quarter figure of $2.39 exceeded market expectations.

— Steel Dynamics (STLD) shares fell 5.8% following the release of its quarterly earnings report. The company’s EPS came in at $5.26, while the guidance provided in September had projected a range of $5.34 to $5.38. At the same time, steel shipments during the reporting period reached a record 3.8 million metric tons.

— FreightCar America (RAIL) shares plummeted 20.4% following a downward revision of its 2026 adjusted EBITDA forecast from $36–44 million to $15–19 million. A contract to retrofit 1,285 railcars has been removed from the order backlog, as the company believes it is unlikely that the customer will fulfill its obligations.

Trading on October 19 on U.S. stock exchanges ended with mixed results. The S&P 500 gained 0.41%, the Nasdaq-100 rose 1.17%, and the Dow Jones fell 0.07%. and the Russell 2000 rose by approximately 0.3%. SPY (+0.42%) outperformed the equally weighted RSP (−0.32%) by 0.74 percentage points, indicating that buying was concentrated in the largest companies. However, the narrow scope of yesterday’s rebound does not imply a sustained underperformance by the equally weighted market: over the past 20 sessions, the RSP has outperformed the SPY by 1.25 percentage points, while the QQQ has underperformed by 2.21 percentage points. The number of declining stocks on the NYSE exceeded the number of advancing stocks by a factor of 1.85. Only three of the 11 sectors included in the broad market index closed in positive territory. The leaders in growth were cyclical consumer goods providers (XLY: +1.78%) and the IT sector (XLK: +1.36%). Raw materials and materials producers (XLB: +0.06%) remained in symbolic positive territory. The underperformers were the utilities sector (XLU: −2.01%), real estate (XLRE: −1.16%), and financials (XLF: −0.83%). Only half of the companies in the S&P 500 are trading above their 200-day moving average.

The NAHB Homebuilder Sentiment Index fell from 32 to 29 points in October, compared with a Bloomberg consensus estimate of 31. The share of companies cutting prices reached 43%, indicating ongoing challenges with housing affordability and demand. The yield on 10-year Treasuries rose by about 6 basis points to 5.14%. Brent crude oil fell 0.3% to $109.55 per barrel but remains near recent highs. Weak housing market data was not accompanied by a decline in market interest rates, which continued to weigh on rate-sensitive sectors.

The S&P 500’s positive performance was driven primarily by Amazon (AMZN: +4.98%), NVIDIA (NVDA: +1.38%), Tesla (TSLA: +3.76%), and Microsoft (MSFT: +0.84%). There was no significant news regarding Jeff Bezos’s company; its rise is attributed to its inclusion among Morgan Stanley’s top investment picks, with a target price raised to $350. The SOX semiconductor index broke its eight-day correction thanks to a forecast by SemiAnalysis predicting an acceleration in data center construction by 2027. In our assessment, the recovery following a large-scale reduction in technology holdings is primarily technical in nature. SPY closed near the low of its intraday range, with volume at 0.92 times the average over the previous 20 sessions. This trend does not yet provide convincing confirmation of a sustained upward reversal.

This article was AI-translated and verified by a human editor