Upcoming Bank Earnings and CPI Data to Influence U.S. Markets This Week

Quarterly earnings reports from major banks and upcoming inflation data will provide U.S. stock investors with insights into corporate profits and interest rate trajectories, critical components of the market's recent momentum. On Tuesday, the S&P 500 achieved an all-time closing high, its first since mid-August, bringing its year-to-date gain to over 13%, despite declines on Wednesday and Thursday.

Next Wednesday's consumer price index (CPI) report, a key inflation indicator, will be among the last significant releases before the Federal Reserve's meeting at the end of October to determine potential interest rate hikes. The Fed increased rates last month for the first time in 2023 in an effort to tackle inflation.

Major banks including JPMorgan and Goldman Sachs will report earnings next week, marking the beginning of what is expected to be a notably strong quarter for U.S. corporate profits. Following a robust first half, S&P 500 earnings are projected to have increased by over 30% in the third quarter, according to LSEG IBES. Matthew Miskin, co-chief investment strategist at Manulife John Hancock Investments, emphasized the significance of these reports in gauging the financial landscape of the banks.

JPMorgan, Goldman, Citigroup, and Wells Fargo will release their results on Tuesday, followed by Morgan Stanley and Bank of America the next day, covering earnings for the six largest banks. Traditionally, bank earnings kick off the quarterly reporting season and provide insights into the broader U.S. economy's health.

Matt Stucky, chief portfolio manager at Northwestern Mutual Wealth Management, highlighted the impact of higher interest rates on capital markets and consumer spending, raising questions about their effects on consumers amid rising energy costs. Recently, bank stocks have struggled, with the S&P 500 banks index down 9% in the past month due to increasing Treasury yields.

Other significant earnings reports next week include healthcare sectors, such as Johnson & Johnson and UnitedHealth Group, along with asset manager BlackRock.

The September CPI report is anticipated to show a year-over-year increase of 3.6%, according to a Reuters poll, while the core measure—excluding food and energy prices—is expected to rise by 2.5%. The Fed aims for a 2% annual inflation rate. Michael Reynolds, vice president of investment strategy at Glenmede, voiced concerns over persistent services inflation, expressing the need for visible progress on this front to alleviate fears of aggressive Fed actions.

Additional reports on producer prices and retail sales will also contribute to the economic outlook. While traders have lowered expectations for another Fed rate increase at the October 27-28 meeting, stronger economic data could revive such bets. Stucky noted that evidence of increasing inflation could put pressure on equity markets.

The Fed's recent rate hikes have contributed to rising Treasury yields, with the benchmark 10-year yield currently around 5.23%, approaching its highest point in 24 years. Higher yields can complicate equity performance by making bonds more attractive compared to stocks. Despite crossing the 5% threshold for the 10-year Treasury yield, the market has so far avoided significant declines. Reynolds cautioned that at some point, major indices may react negatively to sustained higher rates.