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The four-quarter winning streak of the S&P 500 has kept the bulls in control, but inflation data this week could prove a crucial test of whether that momentum still has legs.
With nearly all companies in the S&P 500 having reported their third-quarter results, overall earnings are up about 13.1% year on year, far surpassing the earlier forecast of 7.9%. Roughly 82% of firms exceeded earnings-per-share expectations, marking the fourth straight quarter of double-digit profit growth.
Technology and financial stocks were standout performers, each delivering over 20% earnings growth, supported by surging AI investment, healthy fee income, and prudent cost controls. Industrial and utility companies followed with solid double-digit gains, while healthcare and consumer discretionary sectors posted more modest single-digit increases.
Still, projections for the final quarter of the year suggest some cooling ahead. Earnings growth is expected to ease to around 7-8%, with revenue growth moderating to about 7.1%. Analysts are pencilling in 11.6% full-year EPS growth for 2025, though the slower pace heading into year-end reflects more cautious forward guidance.
Roughly 58% of companies providing Q4 outlooks have trimmed their expectations, a pattern consistent with past years.
Valuations Stretched As Risks Mount
The forward price-to-earnings (PE) ratio of the S&P 500 stands at around 22.7, notably higher than the five-year average of 20. This elevated valuation suggests continued confidence that robust profit margins will hold, yet with margins already hovering near post-pandemic highs of 13%, there is limited scope for further expansion.
If upcoming inflation figures remain stubbornly above the 3% annual mark, markets may begin to rethink the timing of Federal Reserve rate cuts, which could weigh on stretched valuations. On the other hand, a softer CPI reading might revive risk appetite and sustain momentum in technology and cyclical sectors.
Market Movements of the Week
S&P 500 (SPX)
– The index extended gains after strong earnings, testing near-term resistance around 6,810.
– Sustained strength above this level could open the way toward 6,900, while initial support sits near 6,640.
– Traders should watch CPI results for confirmation of sentiment direction.
Gold (XAUUSD)
– Gold remains range-bound near $4,000, consolidating after the rally from last week.
– Bearish price action may emerge near $4,070 or $4,120.
– A weak CPI print could lift gold as the dollar softens.
GBPUSD
– Cable traded above 1.3120, with potential consolidation around 1.3100.
– UK upcoming GDP and CPI could set the tone on the short-term bias of the British pound.
– Bullish momentum holds if prices sustain above 1.3225.
Bitcoin (BTCUSD)
– Bitcoin rebounded from $100,770, eyeing $104,552 resistance.
– A clean break above that level could lead to a correction before further upside.
– Watch for risk-on cues following CPI data for volatility spikes.
Key Events This Week
13 November: US CPI y/y, Forecast: NA, Previous: 3.00%
Inflation remains in focus for Fed policy outlook. A softer print could reinforce rate-cut expectations.
14 November: US PPI m/m
Tentative release; traders watching for producer-cost trends feeding into consumer inflation.
For a full view of upcoming economic events, check out the Economic Calendar by VT Markets.
Market Snapshot
The recent rally of the S&P 500 has been fuelled by a strong earnings season, but with valuations running hot and key inflation data due, traders are bracing for potential volatility. The upcoming CPI and PPI releases could determine whether optimism over corporate profits is enough to counter lingering concerns about interest rates, or if lofty valuations start to curb enthusiasm.
Should inflation remain subdued, risk sentiment could stay buoyant into year-end, keeping tech and financials in favour. A hotter reading, however, might quickly change the tone, boosting the US dollar and prompting market participants to reassess their equity exposure ahead of key policy meetings in December.
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