NEW YORK, Oct 25 - The rally in U.S. stocks is wobbling as it confronts a stretch of potentially market-shaking events, starting next week with corporate results from tech titans and the closely watched employment report, while the U.S. election is also nearing.
The S&P 500's price-to-earnings ratio, based on earnings estimates for the next 12 months, is at 21.8, near its highest level in over three years, according to LSEG Datastream. Because of their massive market values, those companies jointly account for 23% of the weight of the S&P 500, meaning market reaction to their results could sway broader indexes in coming days.The Magnificent Seven stocks trade an average forward P/E ratio of 35 times, as the companies overall have posted much stronger profit growth than the rest of the S&P 500. But that gap is expected to close in coming quarters.
AI"hyperscalers" -- Microsoft, Amazon, Alphabet and Meta -- are set to increase capital expenditures by 40% this year, while such capex spending for the rest of S&P 500 companies are on pace to fall 1% in 2024, according to BofA Global Research. The U.S. jobs report on Nov. 1 comes as investors are weighing whether a stronger-than-expected economy could lead to fewer interest rate cuts by the Federal Reserve than initially anticipated.
The run of market-sensitive events continues the following week, with Election Day on Nov. 5 and the Fed's next monetary policy decision on Nov. 7, which could put investors increasingly on edge in the coming days.
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