This summer, restaurants and many non-Walmart retailers are warning consumers of challenges. People are skeptical of the artificial intelligence ambitions of large technology companies, whose sheer size is driving most of the stock market performance. After signs of a slowdown in the job market emerged, the Fed lowered interest rates to stimulate the economy, which raised questions for some about the already fragile economic conditions.

As companies like JPMorgan (JPM.N) and Delta Air Lines (DAL.N) begin to release their third-quarter earnings reports this week, we will see how much additional stimulus the economy needs before worries are alleviated.

"The main drivers of the market, and what we received the most calls and questions about, are undoubtedly the obsession with the Fed and rate cuts," said Mark Malek, Chief Investment Officer at financial services company Siebert. He mentioned that these trends defined this quarter.

He added: "At the end of this quarter, concerns about a possible economic recession dominated the market sentiment. These two are closely linked."

Eliminating these concerns may not be easy. Many worries defined in the previous quarter's performance still exist in this one.

Ahead of the earnings releases, analysts continue to discuss the "bifurcation" among consumers - the higher-income group being relatively less affected by price hikes over the past two years, while the lower-income group feels more significant pain. In addition, worries are deepened by the escalation of the Middle East conflict, the Ukraine war, and the upcoming U.S. elections. The impact of China's monetary stimulus plan on its weak economy remains unclear.

Analysts suggest that the benefits of lowering interest rates may take time to trickle down to daily life. They continue to debate whether the Fed needs to further reduce borrowing costs to achieve this goal, and whether, with a large influx of investors into technology companies like Nvidia (NVDA.O) and Microsoft (MSFT.O), they will seek returns elsewhere.

Nevertheless, the market remains optimistic about the US September employment report. The strike by dock workers on the East Coast ports threatened the economy, but has been suspended until January 15 after reaching a preliminary agreement with the employers.

The growth slowed down in the third quarter.

According to the FactSet report released last Friday, the S&P 500 index companies are expected to see an earnings growth of 4.2%. This would mark the fifth consecutive quarter of year-on-year earnings growth, albeit at a slower pace compared to the second quarter, first quarter, and the third quarter of 2023.

The report also notes that Wall Street analysts have lowered their expectations for third-quarter earnings more than the average, reflecting the market's low expectations. However, these low expectations in turn make it easier for companies to surpass them.

Despite some relief in inflation, people are still feeling the pressure from high-priced food and certain services, as well as cost-cutting in job positions. However, the overall profit margin for S&P 500 companies is expected to remain relatively stable. According to the FactSet report, the net profit margin for S&P 500 companies is estimated at 12.1%.

This profit margin estimate is close to the historical high of 2021. Despite a slight decline from the previous quarter, it still exceeds the five-year average of 11.5%.

This 12.1% estimate is largely attributed to price increases, layoffs, and budget tightening, and as more quarterly performances are released, profit margins may also decline. However, this also reflects a greater priority on expense control for companies after a decade of bull market.

John Belton, Managing Director of Growth Investment Portfolio at Gabelli Funds, said: "The discipline these companies have shown in recent years, and their dedication to costs, will continue. I believe technology will remain a key driver of profit expansion."

The impact of interest rate cuts on the real estate industry is even more pronounced.

But some analysts say that mortgage rates will not immediately decrease, which may still drive up house prices as buyers try to take advantage of lower borrowing costs.

John Workman, Managing Director of Investment Strategy at Pathstone, said that as the Fed only cut rates at the end of the third quarter, the most significant changes will occur in the fourth quarter and beyond. However, he pointed out that the Fed will also seek to remain flexible.

"So, I think we need to be cautious when looking at these rate cuts," he said.

Banks and large technology companies' earnings reports are coming.

For JPMorgan and other major banks, earnings reports will, as always, provide a broader perspective, revealing the lending and spending driving the economy. Analysts will focus on the prospects for loans, IPOs, and the trading market, especially in the background of increasingly cautious corporate clients and the impact of interest rate cuts.

In the coming weeks, we will start to hear earnings reports from the so-called 'Seven Giants' - Meta Platforms (META.O), Alphabet (GOOGL.O), Nvidia (NVDA.O), Apple (AAPL.O), Microsoft (MSFT.O), Amazon (AMZN.O), and Tesla (TSLA.O). These reports will be released against the backdrop of increased investments in artificial intelligence by these companies, raising questions about the cost of this technology, whether expectations can be met, and when returns can be realized.

In July, when asked about their spending on artificial intelligence, Sundar Pichai, CEO of Google, said, "For us, the risk of underinvesting in investment far outweighs the risk of overinvestment," as this technology has the potential to change the way we work.

However, Morgan Stanley (MS.N) issued a warning to ai investors in a report last month. The report pointed out that historically, when new technologies emerge, investors "focus too much on incumbent companies" and underestimate the potential of new companies to "leverage capital expenditures from other companies to create new products and services."

Belton stated: "I think the market discussion or debate is becoming more complex. I would describe the market as getting somewhat tired on the ai theme."

He later added: "This two-sided debate... stems from a pessimistic view in the market that almost resembles a prisoner's dilemma, where companies feel compelled to invest heavily in this technology, even though revenues have not yet materialized on the other end."

As interest rates decrease to ease pressure on other companies, investors may shift their focus accordingly. However, analysts suggest that the "Big Seven" still have plenty of room for growth.

Brad Peterson, National Investment Advisor at Northern Trust, said: "We believe these companies still have significant growth potential, but so do other companies. Therefore, investors will expand their investment scope."