Key points:

  • Banking sector results beat expectations, supporting market optimism.
  • Tech companies, particularly semiconductor makers, posted strong gains.
  • Investors are watching economic data like retail sales to gauge the health of the economy.

Wall Street’s key indexes were up on Monday, setting new all-time highs. Investors were buying tech stocks ahead of a busy week of earnings reports from major companies and key economic data.

The S&P 500 closed at 5,859.85, up 44.82 points, or 0.77%. The Nasdaq Composite also posted solid gains, adding 159.75 points, or 0.87%, to 18,502.69. The Dow Jones Industrial Average rose 201.36 points, or 0.47%, to close at 43,065.22.

The third-quarter earnings season starts on a positive note

The positive momentum that began Friday with the start of the third-quarter earnings season for major banks has successfully carried over into the current week, allowing the Dow Jones Industrial Average to break through the 43,000 mark for the first time.

The coming days are expected to see the release of financial results from 41 companies in the S&P 500. This stream of corporate reports will provide investors with valuable information about the state of the U.S. economy and will allow them to assess whether companies can live up to the optimistic forecasts embedded in their current share prices.

However, it was the technology sector that was the key driver of the market’s growth on Monday, with the semiconductor segment standing out in particular. The semiconductor index posted strong gains, reaching its highest in two months, helped by a 6.8% gain in Arm Holdings and a 2.4% rise in Nvidia.

The information technology sector led the S&P 500 gainers, adding 1.4%. Tech giants Alphabet, Apple, Microsoft and Tesla also advanced, rising 0.6% to 1.6%.

Despite reaching an all-time high, the Dow Jones was tempered on Monday by a 2% drop in Caterpillar after a downgrade by a brokerage house and a 1.3% drop in Boeing after reporting a bigger-than-expected third-quarter loss on Friday.

Financials set optimistic tone for markets

Positive earnings results from banks have bolstered investors’ hopes that other companies will also post strong financial results, further supporting the positive equity market momentum into 2024. However, given the current high valuations of stocks – the S&P 500 P/E ratio is 21.8, well above the long-term average of 15.7 – companies may struggle to meet investor expectations.

LSEG data released on Friday showed that S&P 500 earnings are expected to grow 4.9% annually in the third quarter.

Kevin McCullough, portfolio consultant at Natixis Investment Managers Solutions, said: “Looking at the current earnings season, I expect we will see positive momentum compared to previous cycles. In the past, companies have faced extremely high expectations and had significant difficulty meeting them. Expectations have now come down somewhat, allowing investors to view the companies’ results more favorably.”

A number of large companies are expected to release earnings reports on Tuesday, including banking giants Bank of America and Citigroup, as well as pharmaceutical leaders Johnson & Johnson and UnitedHealth Group.

Investors will also be closely watching important economic data this week, including retail sales for September, which will provide insight into the financial health of American consumers and provide additional information about the state of the economy.