S&P 500 Rally Stalls as Energy Sector Rebounds; Traders Eye Earnings, Geopolitical Risks

Stock Futures Slide After S&P 500’s Six-Week Winning Streak

U.S. stock futures edged lower on Monday after the S&P 500 and Dow Jones Industrial Average hit record highs, marking their best winning streaks of 2024.

Both the S&P 500 and Dow closed the previous week with their sixth consecutive weekly gains, with the S&P 500 rising 0.85% and the Dow adding 0.96%. The tech-heavy Nasdaq Composite also posted a strong performance, climbing 0.80%.

This performance has raised questions about how long the rally can continue as traders turn their focus to economic data, earnings, and geopolitical developments.

Energy Sector Rebounds

In the energy sector, U.S. crude oil prices recovered over 2% on Monday, regaining some ground after last week’s steep decline of more than 8%. The sharp drop had been driven by reduced fears of a Middle East oil supply disruption amidst ongoing Israel-Iran tensions. Monday’s rally followed news that China cut its benchmark lending rate, sparking optimism about demand in the world’s second-largest economy.

Additionally, Saudi Aramco’s CEO Amin Nasser expressed a “bullish” outlook on China’s energy consumption, though analysts remain cautious due to potential oversupply concerns. Morgan Stanley predicts a surplus of 1.3 million barrels per day by 2025, driven by softer demand and OPEC’s plans to increase production in December.

Stocks to Watch: Kenvue, Boeing, Warby Parker

Several stocks made notable moves early Monday. Kenvue, a Johnson & Johnson spinoff, surged over 8% following news that activist investor Starboard Value took a significant stake in the company, signaling potential plans to push for price appreciation. Boeing gained 3.3% after reaching a contract proposal agreement with its machinists’ union, which could resolve a month-long strike. Warby Parker advanced nearly 5% after Goldman Sachs upgraded the stock, citing stronger margin growth and improving fundamentals.

Conversely, UPS shares slipped almost 2% after Barclays downgraded the stock, warning of potential earnings risks and increasing competition from Amazon. JD.com and Southwest Airlines also saw slight declines due to weaker sentiment in China and early-stage talks with activist investors, respectively.

Earnings Season and Fed Signals

Investors are closely watching the ongoing earnings season, with about 20% of S&P 500 companies expected to report results this week. So far, around 14% of companies have released third-quarter earnings, with 79% surpassing expectations. However, according to FactSet’s John Butters, the scale of the beats has been modest, raising concerns about how much upside remains.

Additionally, Dallas Fed President Lorie Logan signaled her support for gradually lowering interest rates, but emphasized the need for flexibility in response to potential economic shocks. Logan’s comments suggest the Federal Reserve may take a cautious approach to future rate adjustments.

Market Forecast

Despite recent strength, the market outlook remains uncertain. While the six-week rally has boosted investor confidence, some analysts warn of potential volatility ahead, particularly given elevated stock valuations, geopolitical risks, and the upcoming U.S. presidential election. As CFRA Research’s Sam Stovall pointed out, if the market fails to validate its current pricing levels, a correction could occur. Traders will likely keep a close eye on earnings results and economic reports to gauge whether the recent rally has staying power or if a pullback is imminent.