Dow Jones, S&P 500, Nasdaq 100 Outlook: Top Stock Market News This Week

The Dow Jones, S&P 500 and Nasdaq 100 have held steady in recent weeks as investors have focused on rising US bond yields and the escalating situation in the Middle East. Their resilience will be tested in the coming weeks as major US companies report earnings and key economic data is released.

Dow Jones, S&P 500, and Nasdaq 100 to React to Earnings Season

The main catalyst for the US stock market this week will be the upcoming earnings season, which will kick off on Tuesday. Top US banks, including popular names like Goldman Sachs, Morgan Stanley and JPMorgan, will release their numbers. Other non-bank companies that will release their numbers are Johnson & Johnson, UnitedHealth Group and Kinder Morgan.

Analysts are optimistic about this earnings season. FactSet (NYSE:FDS) data shows that the estimate among analysts is that earnings growth will be 29.5%. Historically, the real earnings growth tends to be 7% above the estimate. As such, there is a likelihood that the growth will be over 40%. 

The earnings growth comes at a time when American stocks are trading at discount levels. For example, the forward price-to-earnings ratio for the S&P 500 Index is 19.1, lower than the five and ten-year averages.

US Consumer Inflation Report and US Bond Yields

The stock market will also react to the upcoming US consumer price index (CPI) report on Wednesday. Economists expect the data to show that the headline and core CPI numbers rose last month as gasoline and diesel prices jumped. 

The average estimate among analysts is that the headline CPI rose from 3.4% in August to 3.6% in September. Core inflation, which excludes the volatile food and energy prices, is expected to come in at 2.5%, up slightly from the previous 2.4%.

These numbers will provide more hints about what to expect from the Federal Reserve. Economists expect the bank to leave rates unchanged in this meeting and then hike in December. 

The stock market will also react to the bond market, where the ten-year and five-year yields have pulled back in the past few days. 

Middle East Crisis

The US stock market will also react to the ongoing crisis in the Middle East, which is escalating. For example, Yemen’s Houthis launched a major attack against Saudi Arabia’s main airport, with President Donald Trump hinting that the US will intervene. 

Iran has also continued striking ships crossing the Strait of Hormuz. There is also fear that the crisis will escalate. If this happens, it means that crude oil prices will continue rising in the coming weeks. This, in turn, will lead to higher inflation, pushing the Fed to hike interest rates, which may affect the stock market.

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