Caifinance News on October 8th, after experiencing a hot market in the US stock market for most of the year, recently, Wall Street traders have begun to pay attention to a series of risks: from concerns about the US economy, to uncertainty about the Fed interest rates, to anxiety about the US election.

And this week, one of the most important events that may determine the future trend of the US stock market has arrived as scheduled: the US Q3 earnings season will officially begin.

The US earnings season officially begins this week.

As the earnings season officially kicks off this week, the financial reports of major US stocks companies will be released one after another. On Thursday, Eastern Time, $Delta Air Lines (DAL.US)$the company will release its financial report. $JPMorgan (JPM.US)$ and $Wells Fargo & Co (WFC.US)$ The financial report will be released on Friday.

In the coming weeks, the seven giants of the American stock market $Meta Platforms (META.US)$Please use your Futubull account to access the feature.$Alphabet-A (GOOGL.US)$N/A.$NVIDIA (NVDA.US)$and$Apple (AAPL.US)$N/A.$Microsoft (MSFT.US)$,$Amazon (AMZN.US)$And.$Tesla (TSLA.US)$They will also release financial reports one after another. In addition to paying attention to the growth and profit performance of these technology giants, the market will also focus on their prospects for investment in artificial intelligence and the time to achieve the ultimate return.

Since the beginning of the year, driven by expectations of Fed rate cuts and strong prospects of US corporate earnings, the S&P 500 index has surged by about 20% year-to-date, adding over $8 trillion in market cap. However, with Wall Street analysts revising down their expectations for US corporate performance in the third quarter, the trend may be shifting.

According to data compiled by Bloomberg, Wall Street currently expects a 4.7% year-on-year growth in quarterly earnings of S&P 500 index component companies in the third quarter. This growth rate has been significantly cut from the 7.9% expected on July 12th, marking the lowest increase in four quarters.

According to FactSet data, the market expects the S&P 500 index's profits to increase by 4.6% year-on-year in the third quarter. Since June 30th, profit forecasts for US stock companies in the third quarter have been lowered by 3.8 percentage points. Profit forecasts for eight industries have been revised downward, with the energy industry facing the largest decline.

Wall Street's concerns about the earnings performance of US stock companies also reflect concerns about the overall economic situation in the USA.

According to Mark Malek, Chief Investment Officer of American financial services company Siebert, concerns about the US market falling into a recession have surpassed concerns about interest rate cuts. Eliminating these worries may not be easy now because many concerns from the previous earnings season still persist in this one.

Founder of Trivariate Research, Adam Parker, said: 'This time, the earnings season will be more important than usual... we need specific data from companies.'

Parker stated that investors are particularly focused on whether companies are postponing spending, if demand is slowing down, and if customers are altering their behavior due to geopolitical risks and macroeconomic uncertainties. He said, 'Because many things are happening in the world, corporate earnings and performance guidance appear to be especially important now.'

The future of the US stock market faces numerous obstacles.

For US stock investors, an inevitable huge risk looms ahead: with only a month left until the US presidential election, the competition between Democratic candidate Harris and Republican candidate Trump is evenly matched in momentum.

In addition, the Federal Reserve has just taken the first step towards rate cuts. While people are optimistic about the prospect of a soft landing for the US economy, the speed of future rate cuts by the Federal Reserve remains a question. The escalating conflicts in the Middle East have once again heightened concerns about inflation, with WTI crude oil prices rising by 9% last week, marking the largest weekly increase since March 2023.

Furthermore, a more challenging aspect is that large institutional investors currently have little desire to buy US stocks, as the seasonal trend of the US stock market is weak.

The positions of trend-tracking systematic funds currently lean towards the downside, while the positions in the options market indicate that traders may not be prepared to buy on dips. According to Goldman Sachs data, even if the US stock market remains flat next month, Commodity Trading Advisors (CTAs) may sell US stocks.

History also seems to favor the pessimists. Data compiled by Bespoke Investment Research shows that since 1945, whenever the S&P 500 index has risen by more than 20% in the first nine months of the year, the index has fallen in October 70% of the time in that year.

As of September this year, the S&P 500 index has cumulatively increased by 21%.

There are still reasons for optimism.

Nevertheless, investors have reasons to remain optimistic about this earnings season—due to Wall Street lowering profit expectations for US stocks, companies now have more room to exceed expectations.

F.L.Putnam Investment Management Company's Chief Market Strategist, Ellen Hazen, said: "Previous expectations were a bit too optimistic, and now they are falling back to a more realistic level... (companies) will find it easier to exceed profit expectations because current expectations are lower than before."

In fact, there is ample data to show that American companies still have resilience in their fundamentals. Bloomberg data shows that the continuously strengthening earnings cycle of US companies should be able to withstand signals of overall economic weakness in the US, shifting the balance of the stock market in a positive direction. BI's Michael Casper wrote that even small cap stocks in the US, which have lagged behind large cap stocks this year, are expected to improve their profit margins.

The employment report released last Friday Eastern Time showed,$US - Unemployment Rate (USUER.EC)$unexpectedly declined, easing some concerns about the softness of the job market.

Another optimistic factor is the Fed's loose monetary policy - this has always been good news for the US stock market. Bloomberg data compilation shows that since 1971, during Fed rate-cutting periods, the S&P 500 index has had an annualized return rate of 15%.

When rate-cutting cycles occur during non-recession periods, US stock returns are even more robust. In such cases, the average annualized return rate for large cap stocks is 25% compared to 11% during economic downturns; for small cap stocks, the average annualized return rate is 20% during non-recession periods and 17% during economic downturns.

"Unless company earnings are very disappointing, I believe from now until the end of the year, the Fed's impact on the market will be greater because corporate earnings have been quite stable," said Tom Essaye, Founder and President of Sevensreport Research. "Investors expect this situation to continue."

Editor/Emily