From earnings to energy: what’s driving the market?
Stocks are still breaking records, and traders are waiting for the next big story: third quarter earnings. Almost 70% of companies will report by the end of the month, but, as usual, it’s all about the Magnificent Seven stocks (Alphabet/Google, Amazon, Apple, Meta/Facebook, Microsoft, Nvidia and Tesla). Expectations are modest this time. The consensus view is that growth is slowing, margins will be tighter and tariffs will start to bite. Still, most analysts think the big tech names will beat forecasts again. Consensus calls for S&P 500 earnings growth of around 6%, while the Magnificent Seven are expected to post roughly 14%. That’s slower than the first half of the year but still solid enough to keep sentiment high.
The big question is whether AI spending can keep the momentum going. Hyperscalers (cloud computing companies that deliver huge amounts of computing power and storage capacity) have been pouring money into infrastructure, up 75% year-over-year, though that growth is expected to cool over the next few quarters.
Currency markets are quietly shifting. The yen keeps falling and this time it’s not bouncing back. Japan’s new political direction suggests more government spending and no quick move away from its low-interest-rate policy, which keeps the door open for carry trades (when traders borrow a low-interest-rate currency and reinvest it in higher yielding investments in other currencies).
The euro isn’t doing much better. Political tension in France, weak data in Germany and fading optimism are driving traders away from long-term growth investments. Together, the yen and euro make up half the dollar index, and both are now pointing in the same direction: higher for the U.S. dollar.
Meanwhile, some U.S. Federal Reserve members are pushing back against aggressive rate-cut expectations, which has given the dollar even more support. Add a government shutdown that’s limiting available U.S. data, and traders have little reason to sell dollars right now.
Oil prices edged higher this week, as OPEC+ (the organization of oil-exporting countries in the Middle East and Africa, plus Russia and other smaller oil-producing countries) held back on production increases for next month. Official U.S. data showed that while stocks of crude oil went up, gasoline inventory went down, which kept prices steady.
For now, though, traders are betting that short-term demand will stay strong enough to absorb supply. The tug-of-war continues between those who expect a glut and those who see production leveling off.
Looking ahead, earnings season begins next week, along with fresh inflation data. That should bring back some movement and maybe a few surprises.
Listen to our latest podcast for further insights.
