The third-quarter earnings season officially got underway this week, with three of the biggest US banks—JPMorgan, Wells Fargo, and Goldman Sachs—posting results that were largely solid. But the market's reaction was anything but uniform. Before the opening bell, Dow Jones futures climbed 0.8%, while S&P 500 futures dipped 0.1% and Nasdaq futures fell 0.7%. The divergence reflected a mix of encouraging bank earnings, ongoing concerns about technology stocks, and a notable drop in oil prices.
Bank earnings: a mixed but mostly positive start
JPMorgan, the largest US bank by assets, reported results that beat expectations on some fronts but showed signs of cooling in areas like deal-making and bond trading. As we noted in our earlier coverage, JPMorgan's profit miss signals cooling deal fees and bond trading, a trend that has been building as higher interest rates dampen merger activity and trading volumes.
Goldman Sachs, on the other hand, delivered a strong quarter, driven by a surge in equities trading. The bank's trading boom lifted profit despite an M&A slump, with equities trading revenue jumping 72% year over year. That performance helped offset weakness in investment banking, where fees from mergers and acquisitions remained subdued.
Wells Fargo also posted a solid quarter, helped by growth in its loan book. The bank benefited from higher interest rates, which allow lenders to charge more on loans, and from the lifting of a Federal Reserve-imposed asset cap that had restricted its growth. As our analysis highlighted, Wells Fargo's loan growth lifted Q3 profit as the Fed cap lifted.
Oil prices slip, but remain elevated
Meanwhile, oil prices took a step back, with Brent crude—the international benchmark—falling 1.6% to $104.95 a barrel. The decline came after a period of volatility driven by supply concerns and geopolitical tensions. For consumers, lower oil prices can translate into cheaper gasoline and heating costs, which helps ease inflationary pressures. For energy companies, however, a drop in crude means thinner profit margins.
The slip in oil also had a knock-on effect on stock futures. Energy stocks tend to move with crude prices, so a decline in oil can weigh on the broader market, particularly the S&P 500, which includes several large energy firms. At the same time, the drop in oil may be seen as a positive for airlines, shipping companies, and other industries that rely heavily on fuel.
Why stock futures diverged
The split between the Dow and the Nasdaq reflects the different makeup of these indexes. The Dow Jones Industrial Average is heavily weighted toward financials, industrials, and other traditional sectors, so positive bank earnings gave it a boost. The Nasdaq, by contrast, is dominated by technology and growth stocks, which have been under pressure recently due to concerns about high valuations and the impact of rising interest rates on future earnings.
Tech weakness was a key drag on Nasdaq futures, as investors rotated out of some of the high-flying names that had led the market earlier in the year. This rotation is a common theme during earnings season, when investors reassess which sectors are delivering on their promises.
What it means for investors
For everyday investors, the start of earnings season is a critical moment. Bank results often set the tone for the rest of the reporting period, because banks are seen as a barometer for the broader economy. When banks are making money, it suggests that consumers and businesses are in decent financial shape. When they struggle, it can be a warning sign.
The mixed market reaction also highlights the importance of diversification. While the Dow's rise might feel reassuring, the Nasdaq's fall is a reminder that not all sectors move in the same direction. A portfolio that includes a mix of stocks, bonds, and other assets can help smooth out these swings.
Oil prices are another factor to watch. If crude continues to slide, it could ease inflation pressures and give the Federal Reserve more room to slow its interest rate hikes. That would be a positive for stocks, particularly growth and technology shares, which are more sensitive to borrowing costs.
As earnings season unfolds, investors will be watching not just the numbers, but also what company executives say about the future. Guidance on consumer spending, corporate investment, and the outlook for the second half of the year will be just as important as the headline profit figures.
In the meantime, the divergence in futures is a useful reminder that markets are not a monolith. Different sectors, different companies, and different asset classes can tell very different stories at the same time. For investors, the key is to stay informed, stay diversified, and keep a long-term perspective.
