U.S. Stocks Retreat After Longest Weekly Rally: After U.S. stocks recorded their longest weekly rally of the year,
the markets saw a pullback as traders braced
for key earnings reports from major companies like Boeing, Tesla, and United Parcel Service.
This retreat comes at a time when markets are overbought, increasing the likelihood of short-term profit-taking.

Content

U.S. Stocks Retreat

Wall Street Earnings Challenges

Broad Decline Across Indices

Interest Rate Expectations

Market Volatility

Continued Gains

Future Market Outlook

Earnings Season and Big Tech Performance

Impact of Hurricane Helene

Market Reactions to Corporate Earnings

Strategic Expectations

U.S. Stocks Retreat After Longest Weekly Rally

U.S. stocks took a breather after consecutive gains, pushing the S&P 500 to record highs.
According to SentimenTrader, the market saw about 30 sessions without consecutive losses,
one of the best streaks since 1928.
Dan Wantrobski, research director at Janney Montgomery Scott,
noted that the market remains overbought and vulnerable to short-term profit-taking.

Wall Street Earnings Challenges

Approximately 20% of the companies in the S&P 500 are expected to release their earnings this week,
making this earnings season one of the biggest challenges for Wall Street.
According to Bloomberg Markets surveys, company results are more crucial
in determining the market’s direction compared to the upcoming U.S. elections or Federal Reserve policies.

Broad Decline Across Indices

The S&P 500 fell by 0.4%, the Nasdaq 100 dropped by 0.1%,
and the Dow Jones Industrial Average decreased by 0.9%.
The Russell 2000 also saw a decline of 1.5%.
Additionally, homebuilder stocks experienced significant losses,
while United Parcel Service shares fell after a sell recommendation from Barclays.
In contrast, Nvidia reached a new record, and Boeing shares rose by 2.7% after reaching a tentative agreement with its union.

Interest Rate Expectations and Rising Bond Yields

U.S. 10-year Treasury yields rose by 9 basis points to 4.18%.
Increasing expectations suggest the Federal Reserve may keep interest rates unchanged in November,
with a potential rate cut of 20 basis points expected next month.

Market Volatility and Geopolitical Risks:

Oil prices rose as China moved to support its economy while traders monitored geopolitical risks in the Middle East.
Volatility in stock options, bonds, and currencies increased as investors paid more
for hedging against risks related to U.S. elections,

interest rate decisions, and concerns about expanding conflicts in the Middle East.

Continued Gains for the S&P 500

The S&P 500 has posted continuous gains over the past six weeks,
a rare occurrence that has only happened 53 times since 1950, accounting for about 8% of all six-week periods,
according to Adam Turnquist of LPL Financial.

Future Market Outlook

Turnquist explained that the index typically posts an average return of 0.2% in the week following such streaks,
with 58% extending to seven weeks.
The average returns over the next six and twelve months were 5.1% and 11.4%,
respectively, with above-average favorable rates for both periods.
Turnquist added, “With the market entering a potentially volatile
period before the elections and facing resistance near peak price levels,
historical data suggests that investors should take advantage of market dips to buy,
as momentum tends to continue after a six-week winning streak.”

Earnings Season and Big Tech Performance

David Laut from Abound Financial said, “We believe there is room for continued stock gains,
especially as markets enter a seasonally strong period of the year,
with November and December historically being good months for stocks.”He added,
“Earnings season is heating up, and soon we’ll hear from big tech companies and the latest on their AI investments.
For these companies, this is the quarter to prove their profitability.”
Tesla is expected to face questions this week during its earnings call about production targets
and regulatory challenges following the disappointing launch of its new Cybercab truck.
Boeing also faces challenges as it works to calm investor concerns about production delays,
labor disputes, and depleting financial resources.

Impact of Hurricane Helene on U.S. Stocks

The earnings results of companies like UPS, Norfolk Southern,
and Southwest Airlines are expected to reveal the combined impact of Hurricane Helene
and the three-day East Coast dockworkers’ strike during the last quarter.

Market Reactions to Corporate Earnings

Jeffrey Buchbinder of LPL Financial noted that expectations for third-quarter earnings are relatively low,
with analysts forecasting only a 3% increase in earnings per share for S&P 500 companies.
Buchbinder added that this low bar and a supportive economic environment could lead to gains.
However, he cautioned that the market may have already priced in these positive results.
According to Morgan Stanley strategists, led by Michael Wilson,
companies beating earnings estimates this season are rewarded more significantly than the past four quarters.
They also noted that revisions for 2025 have outperformed seasonal expectations.
Bloomberg Intelligence strategists Gina Martin Adams and Wendy Soong added
that the early days of earnings season are seeing relatively strong price reactions.

Strategic Expectations

According to Goldman Sachs strategists, including David Kostin,
U.S. stocks are unlikely to maintain their exceptional performance from the past decade.
Many investors may shift to other assets like bonds to achieve better returns.
The strategists expect the S&P 500 to deliver an annual nominal total return of just 3% over the next ten years,
compared to 13% over the past decade, with a long-term average return of around 11%.
In a note dated October 18, the team wrote,
“Investors should be prepared for lower-than-average returns on equities over the next decade,
likely closer to the lower end of the typical performance range.”

U.S. Stocks Retreat After Longest Weekly Rally

U.S. Stocks Retreat After Longest Weekly Rally

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