Wall Street week ahead: Investors look for economic clues in bank profits amid foggy data

Investors will be watching quarterly earnings from the major banks next week to gauge the health of the U.S. economy as the federal government shutdown has interrupted the flow of new data. Major U.S. stock indexes fell on Friday, halting market momentum after comments from President Donald Trump heightened trade tensions with China. Stocks ended the week on a downbeat note, just before the benchmark S&P 500 is set to mark the third anniversary of the start of the current bull market on Sunday. Markets were overbought and experiencing some volatility, said Matthew Miskin, co-chief investment strategist at Manulife John Hancock Investments. “Ultimately it goes back into the economy,” Miskin said. “It’s going back to corporate profits, and earnings season is upon us.” With the US stock market valuation near a five-year high and some concerns about investor over-enthusiasm for technology and artificial intelligence, a strong third-quarter earnings season will be crucial for stocks to maintain their momentum. Despite Friday’s sharp decline, the S&P 500 remains up more than 11% this year and within about 3% of its all-time high.

“The market just keeps going up,” said Garrett Melson, portfolio strategist at Natixis Investment Managers Solutions. “The key underpinnings of that are stronger earnings prospects. If you look at the fundamentals, things continue to look good.” The record run for U.S. stock indexes has been accompanied by recent strong gains for other assets, including gold, silver and bitcoin. Several leading officials have recently made cautious comments about the markets, including Kristalina Georgieva, head of the International Monetary Fund, and Jamie Dimon, CEO of JPMorgan. JPMorgan, along with Goldman Sachs, Wells Fargo and Citigroup, are among the major banks starting the earnings season. Bank of America and Morgan Stanley will appear on the stock exchange on Wednesday.

Recent weak labor market data has raised concerns about growth and prompted the Federal Reserve to restart interest rate cuts.

“Banks are a window into the U.S. economy,” said Irene Tunkel, chief U.S. equity strategist at BCA Research. “If we see consumers still spending, if we see loan demand improving, then I’m starting to think maybe we’re not really on a path to contraction.”

Other companies scheduled to report next week include healthcare company Johnson & Johnson and asset manager BlackRock. Overall, S&P 500 companies are expected to see earnings rise 8.8% in the third quarter from a year earlier, according to LSEG IBES.

“A lot of the bullishness is built around expected earnings growth,” said Chuck Carlson, CEO of Horizon Investment Services. “If we start to see cracks in that, that would not be good for the market in general.” Attention will also turn to Washington to see if Republican and Democratic lawmakers can break the deadlock and end the government shutdown that began on October 1. Markets have largely brushed aside the shutdown so far, but investors have warned that risks to the economy will increase the longer it continues, already hampering the US travel industry. Another problem for investors is the interrupted publication of important economic reports by government agencies. The monthly employment report, due on October 3, has already been postponed. Investors are concerned that the shutdown could also affect next week’s data, including releases on inflation and retail sales. The monthly Consumer Price Index report, which is closely watched for inflation trends, will be released on Oct. 24, the U.S. Bureau of Labor Statistics said Friday, after the CPI report was originally scheduled for next Wednesday. While the CPI report will allow the Social Security Administration to meet the deadlines necessary for benefit payments, the BLS said no other releases will be moved or produced until regular government services resume. If the shutdown continues next week, it will impact the October employment report when it is released, “which could make the numbers more difficult to interpret,” Michael Pearce, deputy chief U.S. economist at Oxford Economics, said in a note Friday. “With much of the regular economic data unavailable during the shutdown,” Pearce wrote, “the data fog is growing thicker.”