U.S. earnings calendar tests stock market nerves as rate and growth risks build

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US earnings test market nerves

Highlights

About 70 S&P 500 companies including Tesla, Meta Platforms, and Procter & Gamble report earnings next week, with 85% of early reports beating expectations and a 29% blended earnings growth rate so far.
The Magnificent Seven drive index gains while small caps enter correction territory, prompting concerns about narrow market leadership and warnings of a possible 5% pullback by year-end amid high rates and oil prices.
Bank of America projects S&P 500 earnings growth outside energy and technology will slow to 7% in Q3 from 12% in Q2, highlighting sector concentration risk despite the ongoing bull market.

Next week's reports span key sectors

As reported by CNBC, about 70 S&P 500 companies are due to report next week, offering investors a cross-sector sample even if it is not the busiest stretch of the earnings season.

Tesla is set to report on Wednesday after unveiling its long-delayed Roadster, described in the article as a “flying car” developed with SpaceX. Consumer-facing groups including Procter & Gamble and American Express are also scheduled to release results, alongside semiconductor companies Lam Research and Texas Instruments, while Meta Platforms is also due.

The season is starting strongly. As of Friday morning, 85% of the 46 S&P 500 companies that have reported so far have beaten expectations, and the index is tracking a blended earnings growth rate of 29%, with that figure expected to rise further by the end of the season.

Rates, AI and narrow leadership cloud outlook

Even with strong earnings, investors are showing concern about the broader health of the market as gains remain concentrated in a small group of large companies. The Magnificent Seven are doing much of the lifting in the indexes, while smaller stocks are struggling, and small caps moved into correction territory on Wednesday this week.

Bob Lang, chief options analyst at Explosive Options, says the split between winning and losing stocks is not a healthy condition for the market. He also warns that worries over high interest rates, elevated oil prices, pressure on bond yields and the durability of earnings growth could help drive a 5% market pullback by the end of the year and darken the outlook for next year.

Additional pressure is coming from expectations that the Federal Reserve keeps rates steady at the end of this month while markets still price in the possibility of two hikes by the end of December. The market is also weighing concerns that AI-related spending may decelerate, a theme that is affecting chip stocks and helping push the VanEck Semiconductor ETF, SMH, to a ninth straight daily decline on Friday, its longest such streak since 2006.

Bank of America says this week that, excluding energy and technology, earnings growth for the rest of the S&P 500 is expected to slow to 7% in the third quarter from 12% in the second. That suggests the current season's strength is relying heavily on a narrow set of sectors, even as the broader bull market reaches its fourth year.

In our earlier coverage of the S&P 500’s push toward 8,000, we outlined how the rally has been led by AI-linked megacaps even as investors weigh higher oil prices, elevated Treasury yields, and political uncertainty. That piece also highlighted concentration and breadth risks, noting that earnings growth looks far weaker outside the Magnificent Seven and that many index components are trading below key moving averages—leaving the market more vulnerable to any disappointment during earnings season.

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