By Lewis Krauskopf
NEW YORK (Reuters) -Investors will look to major banks' quarterly earnings reports in the coming week to help gauge the U.S. economy's health as the federal government shutdown has interrupted
the flow of new data.
Despite an up-and-down week, the S&P 500 remained near record highs. The benchmark stock index has gained more than 14% this year and is set to mark the third anniversary of its current bull market run on Sunday.
With the U.S. stock market's valuation around its highest level in five years and some concerns about over-inflated investor enthusiasm for technology and artificial intelligence, a strong third-quarter earnings season will be critical for equities to maintain their momentum.
"The market just keeps grinding higher," said Garrett Melson, portfolio strategist at Natixis Investment Managers Solutions. "The key underpinning of that is stronger earnings outlooks. ... When you look at the fundamentals, things continue to look good."
The record-breaking run for U.S. stock indexes has been accompanied by recent sharp gains for other assets, including gold, silver and bitcoin. Several high-profile officials have recently made cautious comments about markets, including Kristalina Georgieva, head of the International Monetary Fund, and JPMorgan CEO Jamie Dimon.
JPMorgan is among the major banks kicking off the earnings season when it reports on Tuesday, along with Goldman Sachs, Wells Fargo and Citigroup. Bank of America and Morgan Stanley are due on Wednesday.
Recent weak labor market data has raised concerns about growth and prompted the Federal Reserve to restart interest rate cuts.
"Banks are a window into the U.S. economy," said Irene Tunkel, chief U.S. equity strategist at BCA Research. "If we see that consumers are still spending, if we see that demand for loans is improving, then I will start to think that perhaps we're not really edging towards contraction."
Other companies due to report next week include healthcare company Johnson & Johnson and asset manager BlackRock. S&P 500 companies overall are expected to have increased earnings by 8.8% in the third quarter from a year earlier, according to LSEG IBES.
"A lot of the bullishness is built around the expected earnings growth," said Chuck Carlson, chief executive officer at Horizon Investment Services. "If we start to see cracks in that, that would not be good for the market in general."
Attention also will be on Washington to see if Republican and Democratic lawmakers break an impasse and end a government shutdown that began on October 1. Markets have largely shrugged off the shutdown so far but investors have warned that risks to the economy will increase the longer it goes on, while it is already hamstringing U.S. travel.
Another issue for investors is the interrupted publication of key economic reports by government agencies. The monthly employment report, due on October 3, already has been delayed.
Reports on consumer and producer prices, watched closely to assess inflation trends, have been scheduled for Wednesday and Thursday, respectively, with the monthly retail sales report due on Thursday.
Investors have concerned that the shutdown could affect next week's releases as well. The New York Times and Bloomberg reported on Thursday that the U.S. Bureau of Labor Statistics is bringing some furloughed workers back to get out the monthly consumer price index report, and the Times reported it was likely to be released in time for the Federal Reserve's next meeting on October 28-29.
The data flow is being interrupted at a particularly unfortunate time, said David Kelly, chief global strategist at J.P. Morgan Asset Management.
"There are major questions, right now, about how the immigration crackdown is impacting jobs and how tariffs are impacting inflation," he wrote in a note on Monday.
"The longer the shutdown continues, the harder it will be to track the direction of the economy."
(Reporting by Lewis Krauskopf; Editing by Alden Bentley and Richard Chang)
