As September concluded, the three major indexes – Nasdaq Composite, S&P 500, and Dow Jones Industrial Average are on track to record their worst performance of 2023. October is anticipated to be another unpredictable month on Wall Street, with several key factors likely to influence market dynamics.

Historical context

October has historically been a challenging month for stocks, marked by some of the most significant crashes in market history, including events like ‘Black Tuesday’ and ‘Black Thursday’ in 1929, ‘Black Monday’ in 1987, and the depths of the 2008 financial crisis. However, the markets always seem to enter the results season in October with optimism, expecting an enhanced business environment to persist until the year’s end.

Key factors for October

U.S. Government Shutdown

The US Congress passed an 11th-hour stopgap funding bill on Saturday to keep federal agencies running for another 45 days and avert a costly government shutdown. The political standoff and potential shutdown could have impacted financial markets, with Moody’s and Fitch warning of potential credit rating downgrades for the U.S. The shutdown would have suspended the release of major U.S. economic data, including crucial reports on employment and inflation. This data blackout could leave investors and the Federal Reserve without essential information, potentially influencing the Fed’s decisions on interest rates.

Q3 earnings season kicks off

October marks the beginning of the third-quarter earnings season, with major companies reporting their financial results. High-profile names like JPMorgan Chase, Netflix, and Microsoft are set to announce earnings. After a challenging second quarter, investors are closely watching for any signs of recovery or further declines in earnings.

Market expectations and headwinds

Investors are bracing for another potentially rocky reporting season amid macroeconomic uncertainties. Earnings per share for the S&P 500 are expected to decline in Q3, marking the fourth consecutive quarter of earnings declines. Revenue growth expectations are more optimistic but still below the historical average.

Oil on the boil again

WTI Crude Above $90 adds complexity to the overall landscape. Potentially fueling inflationary pressures, due elevated production costs and transportation expenses. Leading to reduced profit margins for businesses. In response, central banks may apply more rate hikes to curb inflation which leads to higher cost of capital and therefore reduced earnings for companies.

In all likelihood, October is likely to present challenges for the Dow, S&P 500 and Nasdaq as the markets grapple with the looming government shutdown, recession fears, Fed’s future interest rate policies uncertainties and slowing earnings growth. Investors should stay vigilant, watch out for corporates’ outlook and commentary and monitor the above-mentioned key factors that could influence market sentiment and direction in the weeks ahead. Be prepared for continued volatility and sharp market movements in the coming weeks.

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