Market Movements: Third-Quarter Earnings and Political Uncertainty Shape Investor Sentiment
As we enter a busy season, numerous companies are ready to reveal their financial results, impacting investor confidence.
The third-quarter earnings season is well underway, with over 900 companies expected to report their results this week, including five members of the so-called “Magnificent 7” stocks. However, many investors are feeling anxious since the markets have seemed stagnant despite reaching all-time highs.
Recent expectations about slower interest rate cuts by the Federal Reserve have caused a sell-off in long-term US Treasuries. On Monday, the 10-year benchmark yield hit 4.3%, marking its highest level since July.
High investor optimism contributed to increased market volatility last week due to the uncertainty surrounding the upcoming election. The Dow Jones Industrial Average declined daily last week, while the S&P 500 dropped in four out of five trading sessions, breaking a six-week winning streak. Meanwhile, the Nasdaq has struggled to surpass its prior peak from July, facing resistance once again on Monday.
Crucial Earnings Reports This Week
As of the end of last week, 182 S&P 500 companies—more than 36% of the index—have reported their third-quarter earnings. Combined earnings from these companies fell by 2.1% year-over-year, although revenues rose by 4.5%. When factoring in upcoming reports, the S&P 500 is expected to see a 1.5% increase in total earnings compared to last year, backed by a 5% rise in revenues.
Another 168 S&P 500 members are set to report this week, indicating that we are at a vital stage in this earnings season.
This morning, PayPal Holdings, Inc. (PYPL) made headlines after the stock dropped more than 5% shortly after trading began due to unexpected revenue shortfalls. While PayPal posted an earnings per share of $1.20, beating expectations of $1.08, its sales of $7.85 billion fell short of projections.
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In better news, PayPal’s total payment volume increased by 9% to $422.6 billion from a year earlier, highlighting the growing significance of digital payments, particularly for its app Venmo.
Later today, Alphabet Inc. (GOOGL), the parent company of Google, will report its Q3 results, becoming the second member of the “Magnificent 7” to do so, following Tesla Inc. (TSLA) last week, which also exceeded expectations.
Markets React to Political Shifts
Market trends suggest that investors are adjusting their expectations based on the possibility of a second Trump presidency. Shares of Trump Media & Technology Group (DJT) soared over 20% on Monday, following a rally by the former president at Madison Square Garden. By Tuesday morning, DJT stock rose over 11% in early trading.
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Polling in swing states and betting markets indicate increasing momentum for Trump, causing investors to rethink the implications of his potential policies, such as deregulation and tax cuts.
This deregulation theme, or “Trump Bump,” was evident after his 2016 election, with the Financial Select SPDR ETF (XLF) rising nearly 18% in the month following his victory. Remarkably, the XLF ETF is currently reaching new all-time highs.
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Additionally, cryptocurrencies have gained traction as Trump’s views appear to have shifted favorably towards the sector. After participating in the Bitcoin 2024 conference, he endorsed World Liberty Financial, indicating a supportive stance on crypto policies, including proposals for a government Bitcoin stockpile.
MicroStrategy Incorporated (MSTR) has seen its share price surge over 300% this year as it continues to invest heavily in Bitcoin. As Bitcoin manages to stay above the $70,000 level shortly before the election, MicroStrategy is well-positioned to capitalize on this trend, offering enterprise software and services powered by AI.
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Key Takeaways
This week’s reports from big tech firms, along with crucial inflation data in the form of September’s Personal Consumption Expenditures (PCE) inflation numbers and an important jobs report, are highly anticipated.
Despite recent market fluctuations, we are heading into a season that has historically shown strong performance. The November to January period, often called the “bull zone,” typically sees above-average stock gains. Furthermore, the November to April stretch has historically been the most favorable six months for stock prices.
Market observers will be keen to see how stocks perform as we approach the election. Now is a crucial time to stay informed, and resources like Zacks can offer valuable insights as we enter the final months of the year.
Market Insights on Hot Stock Picks
From a selection of thousands of stocks, five experts at Zacks have each chosen their favorite, predicting a rise of over 100% in the coming months. Among these, the Director of Research, Sheraz Mian, has identified one stock with exceptional potential for explosive growth.
This company is focused on millennial and Gen Z consumers and reported nearly $1 billion in revenue just last quarter. Recent market pullbacks may present an ideal opportunity for investors to engage. While not all selections from Zacks lead to guaranteed profits, this particular pick could outperform past recommendations, such as Nano-X Imaging, which increased by 129.6% in under nine months.
Get the latest updates and stock recommendations through Zacks Investment Research, including a free copy of 5 Stocks Set to Double.
Tesla, Inc. (TSLA): Free Stock Analysis Report
Financial Select Sector SPDR ETF (XLF): ETF Research Reports
MicroStrategy Incorporated (MSTR): Free Stock Analysis Report
Alphabet Inc. (GOOGL): Free Stock Analysis Report
PayPal Holdings, Inc. (PYPL): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
