Last week was all about fear. This week, investors could turn to greed.
After the stock market was rocked by its worst week in seven months, investors will now start to contend with the quarterly parade of updates on profits and losses from corporate America.
These reports, and the executive pronouncements that come with them, will either give credence to investors’ fears — that rising borrowing and operating costs, along with trade tensions, could hurt growth — or ease them.
Strong economic growth and steep cuts to corporate tax rates produced jumps in corporate profits of 27 percent in the first quarter and 25 percent in the second. That growth helped push stock benchmarks to record levels as recently as September.
For the third quarter, analysts at the financial data firm Refinitiv, formerly the financial and risk business of Thomson Reuters, expect third-quarter profit to rise 21.5 percent for the large companies included in the Standard & Poor’s 500-stock index.
“Earnings are the driver, and the earnings are there,” said Byron Wien, vice chairman of the private wealth group at Blackstone, the private equity and alternative investment firm. “And although they may increase at a slower rate, they’re going to be higher next year.”
There are risks to that profit outlook. And they mirror the worries that have dogged the markets in recent weeks, leaving the S. & P. 500 down 5 percent so far in October.
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Higher interest rates can make it more attractive to pull money out of stocks and sock it away in the bond market. They can also weigh on crucial sectors of the economy by making it more expensive for companies and consumers to take on debt.
The rise in interest rates has pushed the cost of conventional 30-year fixed-rate mortgages to a seven-year high, according to the Mortgage Bankers Association. And on Friday, Citigroup said revenue from mortgage origination was lower. That suggests, in part, that higher rates are starting to discourage borrowers. (Home builders, incidentally, are getting pummeled in the stock market.)
Still, Citigroup’s overall results were better than expected, and its shares rose. Reports from JPMorgan Chase and Wells Fargo also helped reassure investors on Friday.
“The sell-offs took place in the two days before the bellwether financials reported,” said Richard Nackenson, an equity market portfolio manager with the asset manager Neuberger Berman. “They took place in the absence of facts, actual earnings and forward-looking statements. So we’re now starting to replace unknown concerns with real evidence.”
The outlook for banks — which have been significant beneficiaries of the Trump administration’s tax overhaul — is strong. Once the third-quarter numbers are in, financial-sector earnings are expected to rise 41 percent, according to numbers from Refinitiv.
Another sector where earnings are set to rise significantly is energy. Oil prices have jumped more than 40 percent in the last year, and companies are expected to say profits have more than doubled from a year ago.
It won’t be as rosy for industrial companies, which include large exporters like Boeing. Already some manufacturers have noted that their profit margins have been hurt by rising costs. Investors will be eager to hear any guidance about the impact of the trade war between the United States and China because tariffs on imports from the two countries took effect mostly during the third quarter.
The relations between the countries are also a primary concern for investors in large technology companies. Chip-maker stocks have been hit particularly hard by the rise in tensions, as their manufacturing base in Asia risks disruption. The Philadelphia semiconductor index is down more than 8 percent this month.
As always, what executives have to say about the state of their business and the outlook in the months head could also be a decisive factor for stock investors. Even as his bank reported results that were better than expected, JPMorgan Chase’s chief executive, Jamie Dimon, sounded a warning about the long-term impact of rising “economic and geopolitical uncertainties.”
In a conference call with reporters on Friday, he rattled off a list of worrisome events around the world, including weakness in the Turkish and Argentine economies, political trouble in Italy and Saudi Arabia, the Trump administration’s trade tariffs, Britain’s pending exit from the European Union and the Federal Reserve’s reversal of quantitative easing.
“It just seems to be deteriorating a little bit, that’s it,” Mr. Dimon said. “I’m just pointing it out.”