S&P 500 Index Forecast Ahead of the Q3 Earnings Season

The S&P 500 Index has reached a record high this year, driven by the ongoing tailwinds in the artificial intelligence (AI) industry and the Federal Reserve’s interest rate cuts. This article provides an SPX forecast ahead of the third-quarter earnings season.

S&P 500 Index Waits for Q3 Earnings Season

The S&P 500 Index has been in a relentless bull run this year and is now hovering at its all-time high. It has jumped from a low of $4,835 in April to a record high of $6,747, a 40% jump.

The ongoing SPX Index rally will be put to the test when the earnings season starts next week. It will officially kick off on Tuesday, when JPMorgan, the largest bank in the USA, publishes its results.

Other companies, such as Johnson & Johnson, Wells Fargo, Goldman Sachs, and Citigroup, will publish their numbers on the same day.

Most importantly, other firms indirectly involved in the AI space, such as ASML and Taiwan Semiconductor, will also publish their results.

ASML is the largest manufacturer of the highly expensive equipment used to produce chips, while TSMC is the primary manufacturer of chips. TSMC’s customers include companies such as Nvidia and AMD. Historically, its earnings typically indicate that demand for chips is strong.

While bank earnings are important, the main catalysts for the S&P 500 Index will be technology companies like Google, Tesla, Microsoft, Meta Platforms, AMD, and Nvidia. That’s because the AI theme has been driving the current bull run in the stock market.

Data compiled by FactSet shows that the average revenue estimate by Wall Street analysts is that the earnings growth will be 8%. If this is the final figure, it will be the ninth consecutive quarter of earnings growth for the index.

Most importantly, Wall Street analysts have continued to raise their earnings growth targets despite the ongoing economic weakness.

Based on the last earnings, companies in the S&P 500 Index are likely to report results that exceed expectations. That’s partly because many of these firms issued conservative guidelines due to the uncertainties surrounding Donald Trump’s tariffs.

Government Shutdown and the Federal Reserve

The other important catalyst for the S&P 500 Index is the ongoing government shutdown, which is now in its eighth day.

The shutdown occurred due to ongoing differences between Republicans and Democrats regarding how to fund the government.

Republicans have opted for a clean spending package, while Democrats, who hold the leverage in terms of numbers, are advocating for the inclusion of healthcare.

The government shutdown will hurt the economy, especially if workers don’t get their back pay. It will then worsen if Trump follows through with his warning of mass layoffs during the shutdown.

The shutdown will likely be beneficial for stocks, as it raises the possibility that the Federal Reserve will cut interest rates in its final two meetings of the year.

Stocks normally do well when the bank is cutting interest rates. The upcoming minutes of the last meeting will provide more information on when to expect the cuts.

SPX Index Technical Analysis Ahead of Earnings

The daily timeframe chart indicates that the S&P 500 Index has been in an uptrend over the past few months, rising from $4,835 in April to $6,747 this week.

This rally accelerated in May when it formed a golden cross pattern, which happens when the 50-day and 200-day Exponential Moving Averages (EMA) cross each other. The index has remained above the two averages since then.

The risk, however, is that the index has formed a rising wedge pattern, which is composed of two converging trendlines that are ascending. Also, the Relative Strength Index (RSI) and the MACD indicators have formed a bearish divergence pattern on the daily chart.

Therefore, while the index’s outlook is bullish, there is a risk that it may experience a bearish breakout, especially as investors worry about the potential bursting of the AI bubble in the United States. A move above the resistance at $6,900 will invalidate the bearish outlook.