Market rallies on strong earnings

[Redator]

When options are limited, decision-making becomes easier. In the absence of key macroeconomic statistics due to the US government shutdown, investors are forced to react to official statements and corporate earnings. While White House representatives go out of their way to cheer up the stock market, and the start of the corporate reporting season turns out to be favorable, the S&P 500 has little choice but to continue its rally.

In the first week, 76% of reporting companies posted earnings that exceeded forecasts. The average beat rate is 68%, and in the previous quarter it was 73%. S&P 500 constituents are starting strong, and the surge in Apple's stock following reports of impressive sales growth of iPhone models this year pulled the entire market higher. The company's market capitalization rose to $3.83 trillion, surpassing Microsoft and ranking second globally after NVIDIA.

Apple and S&P 500 momentum

The White House is doing everything it can to fuel the rally in the broad stock index. National Economic Council Director Kevin Hassett stated that the shutdown could end this week. Treasury Secretary Scott Bessent announced that he is flying to Malaysia for negotiations with the Chinese delegation. Donald Trump confirmed that the meeting with Xi Jinping scheduled in two weeks in South Korea remains on track.

The US administration is signaling its openness to striking deals. And the stock market is leaning on this. October may live up to its reputation as the most volatile month of the year, but investors' willingness to buy the dips suggests that the S&P 500's correction will be short-lived.

Markets were seriously shaken when Donald Trump announced 100% tariffs. However, fear is gradually giving way to greed. This is indicated by the decline in the VIX volatility index.

VIX Fear Index dynamics

According to Morgan Stanley, two conditions must be met for the risks of an S&P 500 correction to approach zero: a consistently strong third-quarter earnings season and the signing of a trade agreement between the US and China.

Investors are eagerly awaiting the release of US inflation data for September, which is expected to be published soon, albeit with a delay due to the US government shutdown. An acceleration is expected in both consumer prices and core inflation. At first glance, this is negative news for the broad stock index. However, investors are likely to buy the dip, as the Federal Reserve has made it clear that it will cut the federal funds rate at the October FOMC meeting regardless.

Technically, on the daily S&P 500 chart, there was a breakout from the range of short-term consolidation. A break above its upper boundary near the 6,720 level allowed for the opening of long positions. For these to be increased, the broad stock index must consolidate above this level. Under such conditions, the chances of reaching the previously set targets at 6,800 and 6,920 will increase.

The material has been provided by InstaForex Company - www.instaforex.com