Investor Sentiment Diverges as Earnings Season Kicks Off: Will the S&P 500 Defy Expectations?

As the latest U.S. earnings season begins, investor sentiment is divided. While many are cautious, hoping the earnings reports will offer clarity amid ongoing inflation concerns and monetary policy changes, opinions on the market’s direction vary.

A Bloomberg survey revealed that over 60% of 724 respondents believe the third-quarter earnings season will drive the S&P 500 lower. This widespread pessimism reflects fears of a worsening economic downturn.

However, data from FactSet presents a contrasting outlook. Analysts are forecasting around 7.5% earnings growth for S&P 500 companies this year and next, suggesting a more optimistic scenario than many investors expect.

Ed Yardeni, President of Yardeni Research, predicts that the S&P 500 may not return to its peak until the end of 2023, while other analysts see potential for an improving outlook that could lift stock prices.

Even with these mixed views, the Federal Reserve’s upcoming rate decisions are expected to have a significant impact on the market. JPMorgan CEO Jamie Dimon cautioned that depending on how the Federal Reserve manages the economy, the S&P 500 could decline by another 20%. He also warned of a potential recession in the next six to nine months, while the International Monetary Fund (IMF) forecasts 1% growth for the U.S. economy.

The U.S. continues to grapple with inflation, with the consumer price index (CPI) up 8.2% year-over-year in September. The Federal Reserve and some economists argue that the solution lies in reducing demand through higher unemployment and interest rates, which will be critical in shaping the market’s trajectory in the coming months.