Morning in New York: The Start of Earnings Season Takes Center Stage

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 of the day will be the start of the third-quarter earnings season. Traditionally, the largest banks kick off the season. Before the market opens, JPMorgan Chase (JPM), Wells Fargo (WFC), Citigroup (C), and Goldman Sachs (GS) will report their results. Expectations for the third quarter remain quite strong. The consensus estimate for JPMorgan calls for earnings per share (EPS) of $5.82–5.93, compared with $5.07 a year earlier, on revenue of $50.6–51.5 billion; according to the Financial Times, trading revenue of about $38 billion is expected, compared with a record $47 billion in the second quarter. If the banks confirm growth in net interest income and loan quality, the rotation into value stocks will gain momentum. Bank stocks are approaching earnings season significantly lagging behind the broader market. Since the start of the year, SPY has gained 14.1%, while the regional bank ETF KRE and the major bank ETF KBWB have risen 7.3% and 4.4%, respectively. The financial sector as a whole (XLF) remained virtually unchanged (+0.5%), while the IAI ETF, which tracks investment banks and brokerage firms, lost 0.3%. Most of these instruments have lost significant ground since their summer highs, so strong earnings reports and confident forecasts could trigger a catch-up rally. Otherwise, the financial sector’s underperformance relative to the S&P 500 risks persisting.

At 6:00 a.m. Eastern Time (ET), the NFIB Small Business Optimism Index for September will be released (consensus: 98 points; previous reading: 98.7 points). At 8:15 a.m. ET, ADP will release its weekly employment report: in the four weeks ending September 19, the private sector added an average of 23,750 jobs per week. Also today, existing home sales for September will be released (consensus: 3.96 million, compared with 3.98 million in August), and speeches will be delivered by Federal Reserve Board member Christopher Waller, Richmond Fed President Thomas Barkin, and Boston Fed President Susan Collins.

The bond market is resuming trading after Columbus Day. The yield on 10-year Treasuries has fallen below 5.2%, and the market estimates the probability of a rate hike on October 28 at 15–22%; a December hike remains the base case.

UnitedHealth (UNH) also reported its earnings before the market opened; in addition, BlackRock (BLK) and Johnson & Johnson (JNJ) will report their quarterly results.

S&P 500 futures are trading in neutral territory. We assess the risk balance as neutral amid moderate volatility. Support comes from improving market breadth, expectations of a strong earnings season, and cautious positioning outside the technology sector. Weakness in the AI sector and a sell-off in semiconductors, yields near multi-year highs, rising oil prices, and the risk of an inflation surprise are weighing on the market. Bank earnings reports and the reaction of the long end of the yield curve to the resumption of trading after the long weekend will be key factors.

— FormFactor (FORM) shares rose nearly 2% following the announcement of a technology partnership with Teradyne (TER). The developer of semiconductor testing solutions will receive a strategic equity investment of $300 million, which is about 3% of its market capitalization of $10.2 billion. The companies will combine FormFactor’s probe technologies and interface solutions with Teradyne’s automated test platforms for high-performance computing, advanced packaging, high-bandwidth memory (HBM), and silicon photonics. The transaction is subject to regulatory approvals.

— Navitas Semiconductor (NVTS) shares rose 2% following the unveiling of a 24-kW power board developed in collaboration with NVIDIA. The solution converts 800 V DC directly to 12 V, bypassing the intermediate 50 V stage, and delivers 97% efficiency at full load and a power density exceeding 2,000 W per cubic inch. The board is designed for 800-volt architectures in AI data centers and complements the previously introduced 20-kW module. The stock lost 7% during the main trading session.

— Kroger (KR) plans to cut about 3,000 corporate positions over the next three years, which represents approximately 37% of its administrative staff. The decision is linked to the implementation of artificial intelligence in work processes, the elimination of redundant functions, and efforts to reduce operating expenses. The company intends to allocate the freed-up resources toward lowering prices and expanding its retail network. The program has the potential to support Kroger’s profitability.

— Syndax Pharmaceuticals (SNDX) shares fell 17% following the failure of the MAXPIRe study. In Phase 2, axatilimab failed to meet the primary endpoint regarding the annual rate of decline in forced vital capacity in patients with idiopathic pulmonary fibrosis. The study enrolled 145 patients across 62 centers in 14 countries using a 2:1 randomization ratio. The company has discontinued development of the drug for this indication, but programs for chronic graft-versus-host disease are continuing.

— Incyte (INCY) shares recovered from a 4% decline in premarket trading. Since 2021, the company has been part of an exclusive agreement for axatilimab: it splits U.S. sales revenue equally with its partner and is responsible for sales outside the U.S. In our view, this morning’s decline reflects a reassessment of the drug’s potential for expansion into new indications.

Trading on October 12 ended with mixed results. The S&P 500 fell 0.06%, the Nasdaq-100 dropped 0.71%, the Russell 2000 declined 0.45%, and the Dow Jones rose 0.38%. The bond market was closed for Columbus Day, so the session did not provide any new guidance on yields. The decline was driven by a narrow group of stocks: excluding Nvidia, which accounted for an 11-basis-point drop, the S&P 500 would have closed in positive territory. The number of advancing stocks exceeded the number of declining stocks for the seventh time in eight sessions; the broad-market index and eight out of eleven sectors ended the day in positive territory. The top performers were energy (XLE: +1.48%), driven by oil, consumer staples (XLP: +1.22%), telecommunications (XLC: +1.12%), and real estate (XLRE: +0.88%). The IT sector (XLK: −0.90%), consumer discretionary (XLY: −0.73%), and industrials (XLI: −0.07%) underperformed the market.

The biggest contributors to the index were Apple (AAPL: +1.29%) with 9 basis points, Meta Platforms (META: +3.38%) with 8 basis points, and Microsoft (MSFT: +1.14%) with 7 basis points. Meta’s stock rose after Mark Zuckerberg, according to media reports, hinted at the imminent release of the company’s most powerful model, Watermelon. Weighing on the index were Nvidia (NVDA: −1.29%), which subtracted 11 basis points, Micron Technology (MU: −3.88%) with 7 basis points, Broadcom (AVGO: −1.88%), which subtracted 5 basis points, and Amazon (AMZN: −1.11%), which subtracted 4 basis points. Memory manufacturers saw their shares fall following reports of progress by China’s CXMT in cell design, which increases memory density.

Over the weekend, the Houthis attacked King Khalid International Airport in Riyadh: 12 people were killed and more than 300 were wounded. According to the UKMTO, tankers off the coast of Sohar and in the Strait of Hormuz were struck. WTI rose 2.1% to $93.74 per barrel, while Brent rose 1.8% to $106.65. High fuel prices continue to influence inflation expectations.

The news cycle surrounding AI remained intense. Nvidia is in talks to acquire or increase its stake in Reflection AI, a developer of open-weight models. According to media reports, Amazon is discussing the acquisition of the startup Decart for approximately $7 billion. Microsoft intends to deploy its own Maia chips on a gigawatt scale starting in 2027. Broadcom stated that the bottleneck for AI is not chips, but capital.

There were no macroeconomic releases on Monday, and the Treasury did not hold any auctions due to a holiday in the debt market. Beth Hammack, President of the Federal Reserve Bank of Cleveland, spoke in favor of smaller but more frequent adjustments to monetary policy. Thus, the market entered the start of earnings season with weakened sentiment regarding the Federal Reserve, but with a rally that had gained breadth, and inflation data on Wednesday will provide the key guidance on interest rates.

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