Investing.com -- The S&P 500 and Dow Jones Industrial Average (DJIA) reached new highs on Friday, wrapping up a strong week as major banks delivered an encouraging start to third-quarter earnings.
The S&P 500 climbed 0.61%, closing at 5,815.03, while the Dow surged 409.74 points, or 0.97%, to end at 42,863.86. Both indices set fresh records. Meanwhile, the Nasdaq Composite gained 0.33%, finishing at 18,342.94, now within 2% of its all-time peak.
All three major indices notched their fifth consecutive week of gains. Over the week, the S&P 500 and Nasdaq each advanced by 1.1%, while the Dow saw a 1.2% jump.
A strong kickoff to the third-quarter earnings season bolstered market sentiment. JPMorgan Chase (NYSE:JPM) jumped 4.4% after beating profit and revenue estimates, and Wells Fargo & Company (NYSE:WFC) surged 5.6% on better-than-expected earnings results.
The focus of the upcoming week will be Thursday's retail sales report. Retail spending saw an uptick at the start of June and has shown more consistent, moderate growth throughout the summer.
Strategists at JPMorgan anticipate this trend to continue in the forthcoming report.
“We look for a 0.4% increase in overall outlays and a 0.2% increase in the core “control” measure,” they said.
Other important reports set to come out in the coming days include the New York Fed Empire Survey on Tuesday, initial jobless claims and industrial production data on Thursday, as well as the housing starts and building permits release on Friday.
Deutsche Bank strategists believe that the near-term labor market picture will be muddied by the recent hurricanes “as we expect a further uptick in initial jobless claims (270k vs. 258k) from the latest storm.” Continuing claims are also likely to increase, they added.
Earnings growth in Q3 to double consensus estimates: Yardeni
As the new earnings season begins, with the S&P 500 at a record high and valuations appearing stretched, strategists at Yardeni Research that the pressure is on company management to deliver stronger-than-expected earnings. This task should be relatively manageable, given the low expectations currently set.
During the summer, earnings surprises became increasingly negative, leading industry analysts to downgrade their outlooks for third-quarter earnings. By the end of August, the Citigroup Economic Surprise Index (CESI) hit one of its most negative levels in years. However, just as the third quarter wrapped up, the index turned positive, helping to push up both bond yields and stock prices.
Despite this shift, analysts have not revised their third-quarter earnings projections for the S&P 500 upward, even after substantial cuts in previous months. Their current estimate of 3.5% year-over-year growth for Q3 provides a low bar for companies to exceed.
"We think earnings growth will be at least twice as fast,” Yarden’s team said in a note. “So we are expecting a significant 'earnings hook,' comparable to the upside surprises during Q1 and Q2.”
Several earnings reports are set to be in the spotlight this week, including those from major banks like Citigroup Inc (NYSE:C), Goldman Sachs Group Inc (NYSE:GS), and Morgan Stanley (NYSE:MS), along with semiconductor giant and key AI player Taiwan Semiconductor Manufacturing (NYSE:TSM).
Additionally, Netflix (NASDAQ:NFLX), Procter & Gamble (NYSE:PG), and UnitedHealth Group (NYSE:UNH) are scheduled to report their financial results.
What analysts are saying about US stocks
UBS: “3Q results should confirm that large-cap corporate profit growth remains solid, driven by healthy economic growth and continued investment in AI. We look for 5-7% EPS growth for the S&P 500. Excluding the energy sector, growth should be 8-10%.”
“Healthy profit growth should drive further gains in the S&P 500. Our S&P 500 EPS estimates are USD 250 (11% growth) and USD 270 (8% growth) in 2024 and 2025. Our S&P 500 price targets are 5,900 and 6,200 for year-end and June 2025, respectively.”
Bank of America: “Since the Fed’s 50bp cut in September, financial markets have raised the prospects of a “no landing”, especially with the blowout jobs report and hotter CPI print. The ‘no landing’ narrative could continue to strengthen if we get blowout retail sales this week. ‘No landing’ is bullish for stocks, in our view, as long as inflation doesn’t flare up.”
Morgan Stanley: “In early July following the first Presidential debate, we discussed 3 high level dynamics that are still important today: (1) the business cycle remains more important than the election outcome, in our view; (2) on average, volatility picks up in September of election years and stays elevated through October before decelerating in November; and (3) history is supportive of a quality bias in election years.”
Evercore ISI: “Most near term market positive scenario is “Trump + Divided” [government] a result unlikely to be contested and benefitting from gridlock. Least near term market positive scenario is “Harris + Divided”, an outcome likely to be contested, causing market volatility. The probability weighted SPX level is 6,070.31, consistent with EVR ISI’s year end PT of 6,000 – this does not preclude pre-Election volatility (2016 and 2020) nor the potential for a year-end “Meltup”.”