Investors are focusing this week on the earnings results of major US banks to help assess the health of the American economy, as the federal government shutdown adds further uncertainty after official data releases halted.

Wall Street indices ended last Friday and the week with a notable decline, caused by a loss of market momentum following President Donald Trump’s remarks that escalated trade tensions with China. This occurred on the eve of the third anniversary of the current upward wave of the S&P 500 index, casting doubt on the continuation of the positive market trend.

Matthew Miskin, Chief Investment Strategist at Manulife John Hancock Investment, said: “Markets have been in an overbought state, so some volatility is natural. Ultimately, the economy will get back on track through the upcoming corporate earnings season.”

High Valuations

With US stock valuations approaching their highest levels in five years, concerns are growing about inflated expectations in the technology and artificial intelligence sectors, making the third-quarter earnings season critical to maintaining current momentum.

Despite the sharp drop on Friday, the S&P index remains up more than 11% since the start of the year and is only about 3% below its all-time high.

Garrett Mielson, portfolio analyst at Natixis, noted that markets continue their gradual ascent, mainly driven by improving earnings expectations.

A Window on the US Economy

This week marks the start of the corporate earnings season, with heavyweight names such as JPMorgan Chase, Goldman Sachs, Wells Fargo, and Citigroup reporting their quarterly results on Tuesday, followed by Bank of America and Morgan Stanley on Wednesday.

These major banks are seen as a “window on the US economy.” If consumer spending continues and loan demand improves, it may indicate the economy is not heading into a recession.

Other companies like Johnson & Johnson and BlackRock will also release their results this week. According to data from the London Stock Exchange Group, S&P companies’ earnings are expected to rise by 8.8% in the third quarter compared to the same period last year.

Chuck Carlson, CEO of Horizon Investment Services, stated, “Much of the prevailing market optimism depends on expected earnings growth. If gaps start to appear in these expectations, it won’t be good for overall investment sentiment.”

Government Shutdown Uncertainty

Meanwhile, investors are monitoring the ongoing government shutdown since October 1, awaiting a possible agreement between Republicans and Democrats to end it.

Although markets have so far ignored the shutdown’s impact, analysts warn that its continuation could exacerbate economic risks, especially with disrupted domestic travel and delayed release of key economic data. The monthly jobs report, originally scheduled for October 3, has already been postponed, with rising concerns about upcoming inflation and retail sales data.

The US Bureau of Labor Statistics announced that the Consumer Price Index report will be published on October 24, delayed from its original schedule this week to allow the Social Security Administration to calculate monthly benefit increases. No other data will be released until government agencies resume normal operations.

Overall, US markets are in a state of anticipation and caution, oscillating between optimism fueled by earnings hopes and continued upward momentum, and growing concerns over economic slowdown due to the government shutdown, escalating trade tensions, and entering a correction phase.

Key Economic Events This Week

(Eastern US Time)

    • Monday, October 13: Columbus Day holiday
    • Tuesday, October 14: 6:00 AM National Federation of Independent Business survey; Earnings: JPMorgan Chase, Goldman Sachs, Wells Fargo, Citigroup, Johnson & Johnson, BlackRock, Citigroup, Ericsson, Domino’s Pizza
    • Wednesday, October 15: 8:30 AM Empire State Manufacturing Survey; 2:00 PM Beige Book Market Report; Earnings: Bank of America, Morgan Stanley, ASML, United Airlines
    • Thursday, October 16: 8:30 AM US Retail Sales, Core Producer Price Index, Initial Jobless Claims; 8:30 AM Philadelphia Fed Manufacturing Survey; 10:00 AM Business Inventories, Housing Market Index; Earnings: TSMC, Charles Schwab, US Bancorp, Bank of New York Mellon, Interactive Brokers
    • Friday, October 17: 8:30 AM Housing Starts Index; 9:15 AM Industrial Production Index; Earnings: American Express, State Street, Trust Financial