S&P 500 Index Set for Big Move in October

The S&P 500 Index has been moving sideways recently, ignoring major events like strong second-quarter earnings and a hawkish Federal Reserve. However, several key catalysts are expected to drive the index in October.

Earnings season is set to kick off on October 13 with top companies such as JPMorgan, UnitedHealth, Johnson & Johnson, and Bank of America publishing their results. Analysts are highly optimistic about earnings growth, expecting it to jump by 29% last quarter. In most cases, the actual figure is higher than expectations.

The robust AI spending by companies like Microsoft, Google, and Meta Platforms is driving earnings growth. These funds are then moving down the value chains in areas such as memory, GPU, optical devices, and servers. Micron's revenue is a good example of this, with the company making over $54 billion in the fourth quarter of its fiscal year.

Rising oil and gas prices have also pushed earnings growth higher, with companies like ExxonMobil, Chevron, and Marathon Petroleum reporting strong numbers. The Federal Reserve will deliver its interest rate decision on October 28, with economists expecting a hike in rates. However, the outcome depends on upcoming macro data, including nonfarm payrolls (NFP) and headline inflation.

The developments between the US and Iran are another important driver for the S&P 500 Index. Media reports suggest that traffic through the Strait of Hormuz has improved, while Saudi Arabia has reopened the East-West pipeline. However, with US midterm elections approaching, there is a chance that Iran will escalate, leading to higher oil prices.

If oil prices rise, bond yields are likely to soar, which can lead to stock market underperformance. The ten-year yield has already jumped to 5.2%, while the 30-year yield has soared to 5.636%.