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The Stars Have Aligned for a Stock Market Breakout if Earnings Can Impress

The Stars Have Aligned for a Stock Market Breakout if Earnings Can Impress

2019-10-18 17:30:00
Peter Hanks, Analyst
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Stock Market Outlook:

  • A calm in the US-China trade war has seen the US stock market tick higher and an impressive start to earnings season has helped bolster its standing
  • With a relatively stable fundamental backdrop, the market can look to earnings season for direction
  • In the week ahead, 25% of companies on the S&P 500 and 40% of the companies on the Dow Jones will report earnings

The Stars Have Aligned for a Stock Market Breakout if Earnings Can Impress

The recent US-China trade war developments have ushered in a calm atmosphere for the three major US indices, as volatility slips to notable lows – in a month where it is historically highest. That calm, however, has laid the groundwork for a potential break higher in the week ahead as market participants are allowed to shift their focus to earnings season.

Earnings Season: Key Facts to Know & Why it is Important for the Stock Market Outlook

Past seasons have been muddied and overshadowed by more pressing macroeconomic developments like tariff increases. That is not to say such themes are not present this week, thanks to the Boeing/Airbus debacle, but have arguably been priced in. Consequently, the stacked earnings calendar in the week ahead could look to wrest control of stock sentiment from the grander equity themes of weeks past.

Tuesday Imlied Volatility

Looking to specific companies, the list of reporting constituents is lengthy and diverse. Ranging from McDonalds and Lockheed on Tuesday to Verizon and Anheuser-Busch on Friday, every sector has a vested interest in the upcoming results. Indeed, more than 25% of the companies listed on the S&P 500 will release their findings while a whopping 40% of the Dow Jones is set to report simultaneously.

Wednesday Implied Volatility

Within the week’s bustle, tech behemoths Microsoft and Amazon will offer insight on the standing of the FAANG group. After Netflix soared on earnings but subsequently forfeited all gains and then some, it could be argued tech sentiment is on a knifes edge, ready to be tipped in either direction by the industry’s leaders.

Thursday Imlied Volatility

Elsewhere, the Dow Jones will gain significant insight on some of the Industrial Average’s larger components like Boeing and 3M. Similarly, Caterpillar may provide commentary on the state of global growth as it reveals heavy-machinery demand from the world’s various geographical regions. To that end, each report can provide a brief look at trends in various industries and markets, which could weigh in on global recession fears.

Either way, the collection of reports will eventually culminate in an overarching takeaway from the season. If the majority of companies can meet or beat expectations and the general mood is optimistic, the combination of a subdued VIX and an encouraging jolt from some of the market’s largest names, new highs could be easily attainable for each of the S&P 500, Dow Jones and Nasdaq 100. As the week progresses, check back for single-stock analysis ahead of earnings and follow @PeterHanksFX on Twitter for the full list of earnings in the week ahead.

--Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

Read more:Can Earnings Propel the Dow Jones and Nasdaq 100 to New Heights?

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