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The S&P 500 Index has been in a relentless bull run since April, when it bottomed at $4,835, and has since risen to its current level of around $5,670. This rally, which also includes its ETFs, such as Vanguard’s VOO and SPDR’s SPY, will likely be put to the test as the earnings season begins.
This article highlights some of the top catalysts to watch this week.
S&P 500 Index to React to Key Corporate Earnings
The first main catalyst for the S&P 500 Index is the third-quarter earnings season. It will kick off next week when major banks, such as JPMorgan, Wells Fargo, and Citigroup, publish their financial results.
Some notable companies are McCormick, PepsiCo, Delta Air Lines, Levi Strauss, and Applied Digital. While their impact on the index and its tracking ETFs will be muted, they will set the tone for what to expect as the earnings season starts next week.
PepsiCo and Delta will provide hints about the impact of tariffs on consumer spending. This is due to the significant market share of these companies in their respective industries, like air travel and consumer goods.
Potential Mergers and Acquisitions
The S&P 500 Index has reacted positively to some recently announced major deals. Reports suggested that a group of investors, including Jared Kushner’s Affinity Partners, had explored a leveraged buyout of EA, the gaming company well-known for its Madden, FIFA, and Apex Legends franchises. However, no official confirmation of such a deal has been released.
Media reports have stated that BlackRock’s GIP was considering a $40 billion buyout of Aligned Data Centers in a big bet on artificial intelligence (AI). Altogether, deals worth over $1 trillion have been announced in the third quarter, indicating the industry is recovering.
Historically, the stock market has always done well when there are vibrant mergers and acquisitions, as investors predict the next company to be bought.
AI Spending to Influence the Stock Market
Meanwhile, the recent stock market rally has been driven by the ongoing spending on AI by companies from the United States.
OpenAI’s internal valuation reportedly reached around $200 billion, according to Bloomberg, as it surpassed Elon Musk’s SpaceX, valued at about $180 billion, to become the most valuable private company in the world.
Reports also suggested that Meta Platforms and CoreWeave were negotiating a $17 billion partnership, while Microsoft and Nebius explored a $19 billion deal focused on AI infrastructure.
Nvidia, meanwhile, plans to invest up to $100 billion in global AI infrastructure, including partnerships that involve OpenAI. This collaboration will help expand the construction of data centers across the United States.
In another deal announced on Monday, OpenAI announced a multi-billion-dollar deal to use AMD chips across its U.S.-based data centers. The company also announced a $10 billion deal for custom AI chips with Broadcom.
More AI deals will likely lead to more gains in the stock market this week. They will certainly provide solace that the market is likely not in an AI bubble.
US Government Shutdown
The other important catalyst for the S&P 500 Index is the ongoing government shutdown, which started last week. It has affected many government services, including the Bureau of Labor Statistics (BLS), which did not publish the latest non-farm payrolls (NFP) data on Friday.
Analysts expect the government shutdown to have a major impact on the American economy. For one, government spending is a major part of the economy, including in the labor market.
A prolonged government shutdown will be bullish for the S&P 500 Index and its ETFs, like SPY and VOO. It could raise the possibility that the Federal Reserve will accelerate its interest rate cuts.
Odds of more Fed cuts increased last week after the ADP published a weaker-than-expected jobs report. It showed that the economy lost over 36,000 jobs in October.
In this regard, the index will react to statements by several Federal Reserve officials, including Raphael Bostic, Michelle Bowman, Neel Kashkari, and Stephen Miran. They will share details about their outlook on interest rates.
