As data becomes unclear, Wall Street turns its attention to bank earnings reports for direction

In the face of the economic data release interruption caused by the government shutdown, investors will turn their attention to the quarterly earnings reports of major banks in the coming week to assess the health of the U.S. economy.

Major banks such as JPMorgan Chase and Goldman Sachs will be the first to announce their third-quarter results, providing important clues about the economic outlook.

The S&P 500 index remains near historical highs after experiencing fluctuations, having risen over 14% this year, with its bull market approaching its third anniversary. Given that U.S. stock valuations are at their highest level in five years and investor enthusiasm for technology and artificial intelligence sectors is high, a strong third-quarter earnings season is crucial for maintaining the upward momentum of the stock market.

Analysts expect that the overall earnings of S&P 500 constituent companies will grow by 8.8% year-on-year in the third quarter. Recent weak employment data has raised concerns about economic growth and prompted the Federal Reserve to restart its interest rate cut cycle.

Bank Earnings as an Economic Barometer

JPMorgan Chase will be the first to release its earnings report next Tuesday, kicking off the earnings season. Goldman Sachs, Wells Fargo, and Citigroup will announce their results on the same day, while Bank of America and Morgan Stanley are scheduled to report next Wednesday.

Irene Tunkel, Chief U.S. Equity Strategist at BCA Research, stated:

Banks are a window into the U.S. economy. If we see consumers still spending and loan demand improving, then I would start to think that we may not be truly heading into a contraction.

Recent weak labor market data has intensified concerns about economic growth. Investors hope to gauge consumer spending and credit demand through bank earnings reports to assess the economic direction.

Earnings Season Carries Market Expectations

In the current environment of high market valuations, the performance of the third-quarter earnings season is particularly critical. Garrett Melson, Portfolio Strategist at Natixis Investment Managers Solutions, pointed out that the market's continued rise is supported by stronger earnings prospects, with fundamentals continuing to improve.

In addition to banks, companies such as Johnson & Johnson and BlackRock will also release earnings reports next week. According to LSEG IBES data, S&P 500 constituent companies are expected to see an 8.8% year-on-year increase in earnings for the third quarter.

Chuck Carlson, CEO of Horizon Investment Services, remarked:

Much of the bullish sentiment is built on expected earnings growth. If we start to see cracks, it will not be good for the overall market.

Government Shutdown Affects Data Releases

The government shutdown that began on October 1 has already impacted the release of key economic data. The non-farm payroll report originally scheduled for October 3 has been postponed, while the highly anticipated Consumer Price Index and Producer Price Index reports are set to be released on Wednesday and Thursday, respectively, with monthly retail sales data to be published on Thursday.

Although the market has so far reacted mildly to the government shutdown, investors warn that the longer the shutdown lasts, the greater the risks to the economy. Currently, Republican and Democratic lawmakers in Washington have yet to reach an agreement to end the shutdown In the absence of economic data, bank financial reports will provide investors with an important reference for assessing the health of the economy, and their performance may have a significant impact on the subsequent market direction