By Jack Kraft, Vice President, Investment Strategist
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U.S. equities pushed further into record territory last week amid strong corporate earnings and a favorable inflation report. Also in focus was re-ignited trade tensions with China following a post that caused the S&P 500 to drop over 2% in Mid-October. Those concerns have subsided with the U.S. and China reaching a preliminary agreement ahead of a meeting later this week between President Trump and Xi Jinping. All three major indices gained 2% last week with the Dow closing at a record high above 47,000. The S&P 500 also notched a record high closing just below 6,800.
Last week nine of the 11 S&P 500 sectors finished in positive territory with the Technology, Energy, Industrial, and Health Care sectors all up by more than 2%. The two lone sectors to finish in negative territory were the more traditionally defensive areas of the market Consumer Staples and Utilities. The Energy sector caught a bid on rising oil prices with WTI crude gaining more than 7% over the five day stretch following U.S. sanctions on two major Russian oil suppliers. Meanwhile, the 10-year Tresury rate was flat on the week hovering around 4% following a favorable September inflation report that was supportive for the Federal Reserve narrative to lower interest rates.
These record highs have been supported by strong earnings with roughly 30% of S&P 500 companies having reported third quarter results as of Friday, this earnings season is shaping up to be one of the strongest in recent memory. According to Factset, the EPS beat rate stands at an impressive 83%, second only to the post-COVID rebound period. Importantly, this strength isn’t the result of lowered expectations. In fact, earnings estimates have been revised higher throughout the second half of the year, while companies are raising guidance at the highest rate since 2021. Meanwhile, companies cutting guidance is notably down, suggesting broad-based confidence across sectors.
What’s particularly striking is that this momentum isn’t being driven by just the technology sector and names tied to artificial intelligence (AI). Few semi-conductor and cloud companies have reported earnings, none of which are the hyperscalers driving the majority of AI investment. This indicates that the earnings strength is more widespread and not simply a function of AI enthusiasm. According to Bespoke Investment Group, corporate commentary has been relatively upbeat with mentions of layoffs or economic slowdown tracking at their lowest levels since early 2021, and tariff concerns have receded sharply. With strong earnings reactions driving equity outperformance, this season could be pivotal in sustaining upside for U.S. equities amid a favorable macro backdrop into year end.
That favorable macro backdrop is one of the things that is driving higher valuations for U.S. equity prices with the S&P 500 trading at forward 12-month P/E ratio of 22.7x well above both the 5- and 10-year averages of 19.9x and 18.6x, respectively. Here is a list of just a few tailwinds to watch that helps explain the expensiveness of the market. First, is easing monetary policy with the Federal Reserve working towards a neutral rate. On top of this Jerome Powell will be replaced by a Trump Administration nominee who is likely going to favor lower rates based on the administrations commentary. Another positive is on the fiscal side where there is less trade policy uncertainty compared to the start of the year, an increase in defense spending, more favorable tax measures for corporates, and a focus on financial deregulation. Lastly, you have what can be thought of as corporate stimulus with hyperscalers spending an unprecedented amount of money on capital expenditures to build out artificial intelligence infrastructure. Putting these three things together, Wall Street analysts are projecting another strong year of double-digit corporate earnings growth in 2026.
On Sunday, top economic officials from the U.S. and China reached a tentative framework for a trade deal aimed at de-escalating recent tensions. The agreement, forged during side meetings at the ASEAN Summit in Kuala Lumpur, includes a pause on the proposed 100% increase in U.S. tariffs and a delay in China’s rare earth export controls. Notably, China is expected to resume substantial purchases of U.S. soybeans, offering relief to American farmers. While the U.S. has confirmed a Thursday meeting between Presidents Trump and Xi at the APEC summit in South Korea to finalize the deal, China has yet to officially confirm. The framework signals a constructive step toward stabilizing bilateral trade relations with China and should be viewed as a net positive by investors.
Looking ahead to next week investors will have a jam-packed week as the S&P 500 enters peak earnings season and an October Federal Reserve meeting. Highlighting the earnings calendar will be the hyperscalers Meta Platforms, Microsoft, Amazon, Apple, and Alphabet where investors will be looking for updates on their cloud business backlog as a hint for artificial intelligence demand. Additionally, an update on 2026 capital expenditures related to the AI build out will be closely watched. Elsewhere, other major companies reporting include United Health, Eli Lilly, AbbVie, Merek, Visa, Mastercard, Caterpillar, Boeing, Verizon, ServiceNow, and NextEra energy.
Monetary policy will also be in focus with the Federal reserve meeting concluding on October 29 with futures markets pricing in a 96% chance for a 25-basis point cut. This would bring the Fed Funds rate to a range of 3.75%-4.00% and investors will be looking for commentary for an additional cut at the December meeting. Economic data will continue to be light as the government shutdown looks to have little end in sight. This shutdown is little unprecedented and could drag on further as the Trump administration has taken steps to lessen the impact. The Pentagon accepted a $130 million dollar donation to help pay the military during the shutdown although pressures are mounting as November SNAP (food stamp) benefits remain in question.
Economic Calendar for the Week October 27 to October 31
| Time (ET) | Report | Period | Median Forecast | Previous |
| MONDAY, OCT. 27 | ||||
| 8:30 AM | *Durable-goods orders | Sept. | 0.20% | 2.90% |
| 8:30 AM | *Durable-goods minus transportation | Sept. | — | 0.40% |
| TUESDAY, OCT. 28 | ||||
| 9:00 AM | S&P Case-Shiller home price index (20 cities) | Aug. | — | 1.80% |
| 10:00 AM | Consumer confidence | Oct. | 94 | 94.2 |
| WEDNESDAY, OCT. 29 | ||||
| 8:30 AM | *Advanced U.S. trade balance in goods | Sept. | — | -$85.5B |
| 8:30 AM | *Advanced retail inventories | Sept. | — | 0.00% |
| 8:30 AM | *Advanced wholesale inventories | Sept. | — | -0.20% |
| 10:00 AM | Pending home sales | Sept. | 1.00% | 4.00% |
| 2:00 PM | FOMC interest-rate decision | |||
| 2:30 PM | Fed Chair Powell press conference | |||
| THURSDAY, OCT. 30 | ||||
| 8:30 AM | *Initial jobless claims | Oct. 25 | — | NA |
| 8:30 AM | *GDP | Q3 | 2.80% | 3.80% |
| 9:55 AM | Fed Vice Chair for Supervision Michelle Bowman speaks | |||
| FRIDAY, OCT. 31 | ||||
| 8:30 AM | *Personal income | Sept. | 0.40% | 0.40% |
| 8:30 AM | *Consumer spending | Sept. | 0.40% | 0.60% |
| 8:30 AM | *PCE index | Sept. | — | 0.30% |
| 8:30 AM | *PCE (year-over-year) | — | 2.70% | |
| 8:30 AM | *Core PCE index | Sept. | 0.20% | 0.20% |
| 8:30 AM | *Core PCE (year-over-year) | — | 2.90% | |
| 8:30 AM | *Employment cost index | Q3 | 0.90% | 0.90% |
| 9:45 AM | Chicago Business Barometer (PMI) | Oct. | 42 | 40.6 |
| 9:30 AM | Dallas Fed President Lorie Logan welcoming remarks | |||
| *Data subject to delay if government shutdown continues | ||||
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