The stock market broke a historic two-day rally on Wednesday as analysts warned it’s still too early to celebrate given a rash of looming risks—including incoming corporate reports that are likely to show just how badly deteriorating economic conditions are affecting company earnings.
“It takes a long time for [earnings forecasts] to fall for the S&P 500 because it’s a very high quality, diversified index and companies are loath to throw in the towel on the future quarters until they have to,” says Wilson. “This is one of the most difficult macro forecasting environments most companies have ever encountered. It appears that more companies are reaching that point where they can’t fight it anymore.”
Prolonged inflation has forced the Fed to hike interest rates more aggressively than previously expected this year, and stocks have suffered as a result. Despite rallying 5% this week as cooling labour market data suggested the economy may finally be slowing down enough to help inflation fall, some experts aren’t so sure the Fed has reason enough to act less hawkishly. “The economy is too strong for the Fed to pivot,” Oanda analyst Edward Moya said in a Wednesday note, pointing out that private-sector job data from payroll processor ADP showed there were a better-than-expected 208,000 new jobs added last month.
The Fed is expected to raise rates by another 125 basis points this year, but that’s largely contingent on how incoming economic data measures up. Investors are hoping for worse-than-expected jobs data on Friday or better-than-expected inflation data later this month to help justify smaller hikes.
Third-quarter earnings season kicks off next week, with big-bank earnings from Citigroup, JPMorgan and Morgan Stanley all slated for Friday, October 14.
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