The health of US consumers is in focus as the earnings season picks up

By Lewis Krauskopf and Suzanne McGee

NEW YORK (Reuters) – The health of U.S. consumers will come into focus next week, as investors look to corporate earnings reports and retail sales data for further confirmation of economic stability that has boosted equity markets. this month.

As earnings season begins, stocks continue to move. The benchmark S&P 500 is poised to post its fifth straight weekly gain and is edging closer to a new record high after rising more than 21% this year.

Driving the gains is a series of encouraging economic data that have allayed fears of a slowdown that rocked markets over the summer. Among these was the explosive jobs report earlier this month, the latest sign that the economy is maintaining solid growth as the Federal Reserve cuts interest rates — a historically strong combination for stock market gains. of stock.

“Overall, the bulk of the economic data has been positive,” said Art Hogan, chief market strategist at B Riley Wealth. “I hope that will be confirmed by some of the consumer-facing companies reporting next week.”

The earnings from American Express, Netflix, United Airlines, Procter & Gamble and several major banks will provide a broader view of consumer spending, which accounts for more than two-thirds of economic activity. of the US. Retail sales data is expected on Oct. 17.

Shares of JPMorgan Chase and Wells Fargo rose heading into earnings season on Friday, after both lenders beat estimates.

Expectations have confirmed that the economy will avoid recession despite a long period of high interest rates. For example, Goldman Sachs, lowered the chances of a recession in the US economy in the next 12 months by five percentage points to 15% based on job data.

Empirical data support that view. In addition to jobs, reports on consumer prices and the service sector suggest that fears of a rapidly weakening economy – fueled by disappointing labor market reports in August and September – were overblown.

The Citigroup Economic Surprise Index, which measures how economic data stacks up against expectations, turned positive this month after being negative since early May.

However, the consumer spending environment has become “murkier” following the slowdown in financial services and technology companies in recent months, the latest hurricanes in the southeast and a short strike by ship workers, said Kevin Gordon, chief investment officer at Charles Schwab, to raise standards for data and company reports to provide clarity.

More insight will come from additional banks reporting in the coming days, including Bank of America and Citigroup on Tuesday.

American Express’ results will provide a read on higher consumer spending, said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia. On the income side, investors said they were focused on how affluent consumers have been coping with rising prices over the past few years.

Brian Jacobsen, chief economist at Annex Wealth Management in Milwaukee, said he will monitor Netflix’s results — particularly whether the streaming service is gaining or losing customers and at what pace — for insight into low-income consumers’ spending priorities.

Companies will need to raise earnings growth expectations in their quarterly reports in order to support stock market values, which are above historical levels.

Among the small number of companies that have already reported, 79% have higher estimates, according to the pace of the previous four quarters, LSEG IBES data on Friday showed.

More than 150 S&P 500 companies are expected to report results in the next two weeks.

Third-quarter results should confirm that growth in gross corporate profits remains solid, analysts at UBS Global Wealth Management said in a note on Friday. “Now that the Fed has started its cycle of rate cuts, the economy should get more energy from lower interest rates on things like credit card debt and commercial debt.”

(Reporting by Lewis Krauskopf and Suzanne McGee; Editing by Ira Iosebashvili and Richard Chang)

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