Government Shutdown Clouds Economic Data: Investors Face Uncertainty as Earnings Season Nears End
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The third-quarter earnings season slows considerably following the second-busiest week, with just 9 S&P 500 companies scheduled to report. Notable companies scheduled to release earnings include: Occidental Petroleum (OXY), Cisco Systems (CSCO), Walt Disney (DIS), and Applied Materials (AMAT).
With 91% of companies reporting so far, 82% have beaten consensus earnings estimates. The earnings season preview from last week contains more details about the underlying drivers of earnings.
S&P 500 Earnings Season
Glenview Trust, Bloomberg, FactSet
Earnings At A Glance
Combining actual results with consensus estimates for companies yet to report, the S&P 500’s blended earnings growth rate for the quarter is at 13.1% year-over-year, above the expectations of 7.9% at the end of the quarter. The expected earnings growth rates for calendar years 2025 and 2026 are 11.6% and 13.7%, respectively.
S&P 500 Earnings Summary
Glenview Trust, FactSet
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Economic Data
With the US government still closed, investors have been forced to rely on private, second-tier, and soft data to gauge the momentum of the economy. The ADP report this week showed modest hiring growth, with 42,000 jobs created in October.
ADP Jobs Report
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On the other side of the coin, the Challenger, Gray & Christmas measure of layoffs spiked to 153,074. This reading was the highest number of involuntary job separations in October in over twenty years. Year-to-date, job cuts have been the highest since the pandemic, at more than 1 million.
US Job Cut Announcements
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Meanwhile, consumer sentiment has plunged to near-record lows. Concerns about personal finances and growing worries about the job market weighed on the data. Poor sentiment readings don’t always lead to worsening economic conditions, but they do raise warning bells and warrant increased monitoring of consumer and business spending behavior.
Consumer Sentiment
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None of these economic releases shows an economy in freefall, but, without official data to the contrary, they signal a rising downside threat to US economic growth.
Market Performance
Despite the continuation of the strong earnings season, the S&P 500 fell by 1.6% last week. The Magnificent 7, consisting of Microsoft (MSFT), Meta Platforms (META), Amazon.com (AMZN), Apple (AAPL), NVIDIA (NVDA), Alphabet (GOOGL), and Tesla (TSLA), underperformed last week, losing 3.2%.
With much of the advance in stocks since the April lows built on falling concerns about a recession and the artificial intelligence (AI) revolution, it should not be surprising to see some profit-taking as worries about the outlook creep in.
Market Returns
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Magnificent 7
Despite robust earnings growth and business activity, concerns about massive capital spending in the AI space weighed on the group last week. Investors are wondering if the companies will see an attractive rate of return for shareholders on all this AI infrastructure spending. Even NVIDIA (NVDA), one of the primary beneficiaries of AI spending, saw a rare down week.
NVIDIA (NVDA), the last of the Magnificent 7 to report earnings, is scheduled to report on November 19.
Magnificent 7 Earnings Season
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Earnings Insights By Sector
According to FactSet data, the positive earnings surprises from companies in the industrials, financials, and health care sectors were the most significant contributors to the S&P 500’s earnings growth rate increase last week.
Earnings Growth By Sector
Glenview Trust, FactSet
Within industrials, Uber Technologies (UBER) was the most significant positive driver. Berkshire Hathaway (BRK/A, BRK/B) and Allstate (ALL) were the most crucial positive surprises in financials, while Pfizer (PFE) and Moderna (MRNA) were the most notable positive surprises in health care. A deeper dive and insights into Berkshire Hathaway’s third-quarter earnings are here.
Revenue Results By Sector
Sales growth at 8.3% is running well above expectations. Three sectors are on pace for double-digit year-over-year sales growth this quarter: information technology, communication services, and health care.
Sales Growth By Sector
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What To Watch This Week
With the government shutdown continuing to drag on, US economic releases should remain sparse. There are signs that the election being over, increased travel pain, and the looming Thanksgiving holiday might force a deal to open the government in the coming week.
With the limited government economic data and earnings season nearing its end, the host of Federal Reserve speakers will be closely watched. There are thirteen appearances scheduled by Fed officials this week. Perhaps the bright side of the softer economic data discussed previously is that the odds of a Fed rate cut at around 70% in December have moved higher after Chair Powell’s comments following the last cut, which sent them to 62%.
Expected Fed Rate Cuts
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With time running out in calendar year 2025 and no sign of freefall, the odds of recession will likely remain low. The attention of investors and economists has turned to 2026, and some yellow lights have appeared in a creeping increase in the betting odds of a US recession by the end of 2026.
US Recession Betting Odds
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Since the early April lows, gains in stocks have been built on the foundation of receding concerns about tariffs and an economic downturn, further bolstered by the artificial intelligence (AI) wave. Markets had priced in a very rosy outcome for the economy and earnings, so the volatility could persist if that foundation continues to be shaken. For now, there are no structural cracks; instead, there are some warning signs of slowing momentum and growing downside risks.
Disclosure: Glenview Trust may hold the stocks mentioned in this article within its recommended investment strategies.