Finimize - 📊 An earnings hurdle

What’s going on here?

Companies in the S&P 500 have been beating earnings estimates at the lowest rate in nearly two years.

What does this mean?

We’re deep into earnings season, with companies raising the curtain on their third-quarter updates, one after another. And this time around, the situation is pretty crucial: with US stock valuations riding high, investors want to see results that are strong enough to keep the market rally going. See, the S&P 500 has been on a tear, posting gains for six straight months. Unfortunately, though, company earnings haven’t been living up to expectations of late. So far, roughly a third of the firms in the big index have reported their results, with about 75% of them posting profits that beat analysts’ forecasts. And that might sound good, but it’s actually the weakest showing since the fourth quarter of 2022.

Why should I care?

The bigger picture: Struggling to pull weight.

Investors will get a much better picture of how Corporate America is faring this week, with firms accounting for nearly 42% of the S&P 500’s market capitalization dishing out results. That list includes tech giants like Alphabet, Microsoft, Amazon, Meta, and Apple. And analysts have been crystal-ball gazing, predicting that these five companies – along with Nvidia and Tesla – saw their earnings grow by a burly 18% in the third quarter, compared to the same period last year. Take out those “Magnificent Seven” firms though, and the rest of the index is expected to report zero profit growth.

Zooming in: Swinging for the fences.

AI will be the big focus for investors glued to the earnings reports this week. That’s because, in the third quarter, Microsoft, Alphabet, Amazon, and Meta are projected to have spent a mighty $56 billion on costly infrastructure like data centers, up 52% from the same period a year ago. And with investors already losing sleep about how much these tech giants are pouring into AI – compared to what they’re actually getting out of it – those big numbers won’t be much of a tonic.

What’s going on here?

The price of oil dipped 6% on Monday, the biggest single-day drop for the international benchmark Brent crude in over two years.

What does this mean?

The oil market has been on edge for the past year, with tensions generally running higher across the oil-producing Middle East. And investors’ jitters climbed even more at the start of the month when Israel vowed attacks against Iran. But the widely anticipated strike, which happened over the weekend, spared Iran’s energy infrastructure, easing serious concerns about disruption of oil production in the country – which accounts for about 3% of the world’s crude.

Why should I care?

The bigger picture: Global impact.

Tensions haven’t let up across the region, but traders are shifting their focus away from those geopolitical risks to the potential of a big oil surplus in 2025. See, OPEC+ – the group of the world’s biggest oil-producing countries – has been voluntarily reducing its output since 2022, but it plans to gradually ramp up its output again starting in December. And we’re not talking small beans here, but a whopping six million barrels a day – roughly 6% of global demand. Mind you, the ongoing cuts haven’t exactly had the impact you might expect because producers outside the group – especially the US and Canada – have been more than happy to make up the difference. So when you combine increasing supply from North America and OPEC+ with weak demand from a sluggish economy, it’s not hard to understand why the market is looking steeped in the slippery stuff for next year – and potentially beyond. No wonder then that the International Energy Agency began warning back in June that the world faces a massive oil glut amounting to millions of barrels a day by the end of the decade.