Market Week Ahead: Bank Earnings, Yields, S&P 500 at 8,000
Weekly stock outlook: earnings season opens with JPMorgan, US 10-year yield at 5.34%, S&P 500 near 8,000. What investors should watch.
Key Takeaways
- On Tuesday, October 13, big banks such as JPMorgan open the third-quarter earnings season.
- The 10-year US Treasury yield recently hit as high as 5.34%, a level not seen since 2002.
- The S&P 500 sits near 8,000 points, but only a few heavyweights are carrying the gain.
Two forces are pulling in opposite directions: equity indexes near record highs on one side, interest rates at a 24-year high on the other. The results from US banks will show first which side gains the upper hand in the coming week.
Rates Set the Tempo for the Week
On Monday the US 10-year yield reached 5.349%, HKCM reports. It has added 54 basis points in October alone. According to Finanzmarktwelt, citing Bloomberg, the move is driven mainly by the risk premium on long maturities, the so-called term premium. The New York Fed's model puts it at 0.98 percentage points, the highest since 2014. Inflation expectations have stayed largely calm.
The Fed raised rates in September for the first time since 2023. The minutes released on Wednesday leave room for another hike this year. The labor market argues against it: just 29,000 new jobs in September point to cooling, which is why HKCM considers a pause in October likely.
Investors are already reacting. Money market funds took in $166.4 billion in the week to October 7, while equity funds drew only $12.4 billion. HKCM analyst Phantom expects the yield peak within days and sees risk to that view above roughly 5.7%.
A Rally on a Narrow Foundation
The bull market in the S&P 500 (SPX) turns four on Monday, with the index up 117% since October 12, 2022. Behind the headline there is an imbalance: the equal-weight index, which counts every stock the same, trails the benchmark by 52 percentage points. There has been no wider gap at this stage since at least the 1990s, according to Bloomberg via Finanzmarktwelt.
AI enthusiasm provides the lion's share. Nvidia (NVDA) has gained more than 1,900% since the late-2022 low and is closing in on a market capitalization of $6 trillion. CFRA strategist Sam Stovall cautions that the rally is limited by historical standards. Ed Yardeni recently cut his year-end target for the S&P 500 from 8,400 to 7,900 points.
Tuesday Brings the First Earnings Test
The banks kick things off, with JPMorgan at the front. The market expects companies to extend the run of seven straight quarters of double-digit earnings growth. If they do, investors tend to look past the risks, says Fidelity strategist Jurrien Timmer. If weakness shows, valuations come under scrutiny. The US midterm elections follow in November.
What momentum says
Momentum signals a bullish state for Nvidia, the flagship of the AI rally, on both the daily (1D) and weekly (1W) timeframes. The trend is intact, but that says nothing about how the stock will react to the big banks' results or to the bond market.
Scenarios
If the 10-year yield falls back after its peak, as HKCM expects, the S&P 500 would have room to jump above 8,000 points, supported by solid bank results.
If the yield instead climbs toward 5.7%, valuations come under pressure. Ed Yardeni's lowered year-end forecast then comes into focus: 7,900 instead of 8,400 points.
If the yield stays in its range, earnings quality decides. If the banks disappoint, the market would turn the thin breadth of the rally into a bigger topic more quickly.