How October's earnings will set the tone for the coming months

In October, the earnings season starts and we will be seeing earnings unfold over the coming weeks.

Here is an overview of key earnings that we can expect from October 2022:

October 2022 key earnings

For the coming week (starting 10 Oct 2022), we have the following:

key earnings for the week starting 10 Oct 2022

From the Yahoo Finance article here, a few sectors are known to benefit from rising interest rates.  Here are the extracts from the article:

A few sectors thrive during rate hikes, including financial services, real estate, energy and healthcare.
 
Financial Services
Financial services, which can include banks, insurance firms and brokerage companies, is one of the key industries that benefits from a sharp rise in interest rates.
 
Energy
The energy sector includes oil processors and refiners. This sector tends to have above-average performance during inflation and increasing rates, thanks to higher oil prices.
 
Healthcare
Like other industries on this list, healthcare is recession resistant and will probably always be in demand. Most consumers would reduce other discretionary expenses before healthcare costs, giving this sector an edge during rising inflation. For example, most people know that health insurance is extremely important, especially since healthcare costs are the leading cause of bankruptcy in the U.S.

The bank's earnings will start this week.  During the earnings, there are 3 components that we look out for namely earnings per share (EPS), revenue and market outlook.  In fact, I would say that the market outlook could have the biggest impact.

In the coming earnings of the bank, let us pay attention to the market outlook.  Being financial institutions, they should benefit the most from Fed's hawkish stand which implies interest rate hikes.  However, if the market outlook is bearish, it would not spell good for the outlook of the market.  We are already seeing cracks in financial institutions.  

One of the concerns can be found in the layoffs as per the news screenshot below:

news of bank layoffs

From the news screenshot, Goldman Sachs and M&T bank have layoffs in the pipeline.  This is not a good sign as this could imply a market downturn which could outweigh the interest rate hike gains.

From the news extract, The tech sector currently represents about 28% of the S&P 500, more than the weighting of the healthcare and consumer-discretionary sectors combined. 

Big tech powered US stocks to a third straight winning year in 2021, as giants like Apple Inc. and Microsoft Corp. continue to see strong demand almost regardless of the economic environment.

Five of the market’s most notable Internet and technology names — Apple, Microsoft, Google parent Alphabet Inc, Amazon.com Inc and Facebook parent Meta Platforms Inc — rose this year, even as they finished in the red on the final trading day of 2021.

While their 2021 performances varied from Alphabet’s 65% surge to Amazon’s 2.4% slog, the group collectively added more than $2.45 trillion in market valuation. Microsoft, Apple and Alphabet were among the three biggest contributors to the S&P 500 Index’s 2021 gains.

Read more at:

https://economictimes.indiatimes.com/markets/stocks/news/big-tech-adds-2-5-trn-in-value-on-robust-2021-gains/articleshow/88646894.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

As per above, Big Tech does weigh heavy on the S&P500.  During the earnings, the market outlook presented by Big Tech will be crucial for market confidence.  

Some of Big Tech earnings date

If Big Tech like Amazon, Apple, Microsoft, Alphabet (Google), Nvidia and Meta reported a less than favourable outlook, the market would crumble.  Except for a few sectors like energy (due to the energy crisis) expected to do well, the rest of the market is unlikely to be able to turn things around.  

Conclusion

By the end of October (after Big Tech) earnings, we would have a good sense if the market outlook is bullish or bearish.  By the end of October, the market would have known the performance and outlook of these market movers.  This should set the tone for the rest of the market to follow.

If the outlook of the October earnings remains bearish, it is unlikely that the rest of the earnings would be able to lift the mood of the market.   There could be a few exceptions like the ending of the war in Ukraine that could possibly send the market surging.  In essence, we are probably expecting more "black swans" than good news to rally the market.

This article is penned to provide a realistic market outlook.  With this, we would better navigate our way out of the choppy waters.  I would like to encourage all to spend within our means, invest with what we can afford to lose, avoid leverage and set aside "cash for crash".  Let us shortlist great companies that could be available at good discounts.