The 2 biggest questions hanging over the stock market will take center stage next week as Wall Street tries to regular itself after a volatile begin to October. One key test is corporate earnings, because the third-quarter reporting season kicks off. JPMorgan , Morgan Stanley and other major banks are reporting their numbers, while Delta Air Lines is one in every of the headliners outside of the financial sector. Sentiment heading into earnings is low and getting worse. John Butters of FactSet said in a note on Sept. 30 that the third quarter had already seen the most important earnings estimate cuts for S & P 500 firms in greater than two years. But many on Wall Street think estimates are still too high, each for this quarter and the upcoming ones where a recession seems likely. “If there’s one disconnect, it’s that the expectations have not come down enough,” said Nick Raich of The Earnings Scout, pointing to the fourth quarter and 2023 as key areas to observe. “I believe we’ll see overall earnings expectations fall perhaps 10% or 15% this earnings season. They only fell like 2% last earnings season. So which means the negative revisions are going to speed up to the downside,” he added. The earliest earnings results haven’t been pretty. Raich said that, as of Thursday, 20 S & P 500 firms had already reported, and five had seen their stock fall greater than 20% within the aftermath. Advanced Micro Devices then joined the party on Thursday evening, warning that its revenue would miss for the third quarter and sending its stock tumbling on Friday . Even with general investor pessimism and a widespread belief that earnings results are too high, the early reporters show that third quarter reports can still cause big swings. “Disappointing earnings won’t be a surprise, the query is whether or not those earnings will disappoint investors,” Frank Gretz, a technical analyst at Wellington Shields, said in a note to clients. “How much bad is priced in?” Inflation Outside of earnings, inflation might be a serious focus for investors next week. Two key reports are due up, with the producer price index on Wednesday and the patron price index on Thursday. The U.S. economy is currently being buoyed by its resilient labor market , but many economists fear the Federal Reserve’s fight against inflation could lead to a recession . “We’re at the purpose immediately where I believe that the inflation data are more necessary than the labor market data, in that until the inflation data moderates the Fed won’t feel comfortable slowing,” Eric Winograd, director of developed market economic research at AllianceBernstein. There have been some signs that lower inflation is coming down the pipeline, with prices paid components of producing surveys falling and burgeoning signs that the rental market is starting to roll over just like the housing market before it. But those numbers haven’t yet shown up within the Fed’s major inflation metrics, and the central bank has said it desires to see multiple months of declining inflation before changing course. “Inflation, inflation, inflation. We want to see evidence that price pressures are easing. I believe there’s good evidence that the economy is beginning to slow, but it’ll take greater than what we have already seen to bring inflation back down,” Winograd said. Week Ahead Calendar Monday 1:35 p.m. Fed Vice Chair Lael Brainard Tuesday 6:00 a.m. NFIB Small Business Index Wednesday Earnings: Pepsico 8:30 a.m. Producer Price Index 1:45 p.m. Fed Vice Chair Michael Barr 2:00 p.m. Treasury budget 2:00 p.m. Fed minutes 6:30 p.m. Fed Governor Michelle Bowman Thursday Earnings: Delta Air Lines, Walgreens Boots Alliance, Domino’s, BlackRock, Fastenal, Industrial Metals 8:30 a.m. Jobless claims 8:30 a.m. Consumer Price Index Friday Earnings: JPMorgan Chase, Wells Fargo, Morgan Stanley, Citigroup, UnitedHealth Group, PNC Financial, US Bancorp, First Republic Bank 8:30 a.m. Import/Export data 8:30 a.m. Retail sales 10:00 a.m. Business inventories 10:00 a.m. University of Michigan consumer sentiment
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