The stock market rally is sputtering. Earnings season could revive it

Stocks have been tumbling this week. Investors are hoping the upcoming earnings season will help bring back this year’s banner rally. Analysts polled by FactSet expect first-quarter earnings of S&P 500 companies to grow 3.1% from the prior year. That would mark the third straight quarter of earnings growth. Full-year profits are expected to swell about 10.7%. All three major US indexes have notched repeated record highs this year after a gangbusters 2023, despite hot inflation data and hawkish Federal Reserve chatter forcing Wall Street to pull back its expectations for six interest rate cuts this year to three. Some traders credit strong fourth-quarter corporate earnings and the resilient economy for fueling optimism that the US will avoid a recession and in turn the market’s continued surge. But stocks began tumbling just after notching their best start to the year since 2019. The S&P 500 has fallen 2% this week after hot inflation data and warnings from Fed officials raised concerns that long-awaited rate cuts could come later than expected. Elevated bond yields and spiking oil prices are also weighing on stocks. The first-quarter earnings season could get the stock rally chugging along again, some investors say. “If we can see corporate earnings continuing to move higher, ultimately that provides the catalyst for the market to continue to work,” said Matthew Stith, director of equity research at Bartlett Wealth Management. Earnings season kicks off next week with quarterly updates from Delta Air Lines, Citigroup, BlackRock, JPMorgan Chase and Wells Fargo. Investors will parse the reports for clues that consumer spending continues to be strong. Recession fears have waned in recent months as the jobs market stays resilient against interest rates being held at a 23-year high. But Americans’ attitudes towards the economy have soured and lower-income consumers have pulled back their spending, painting a mixed picture of the economy’s health. “Earnings season is likely to show a bifurcated market where many companies are thriving, but an increasing minority are struggling,” wrote Yung-Yu Ma, chief investment officer at BMO Wealth Management, in a Wednesday note. Wall Street will get a glimpse of the economy’s strength when the latest jobs report is released on Friday morning. Economists project that the US economy added 200,000 jobs in March, according to Factset.