Why Oct. 31 Could Be a Big Day for the Stock Market

The S&P 500 (^GSPC 0.16%) has advanced 22% year to date amid enthusiasm about artificial intelligence and interest rate cuts, notching about four dozen record highs along the way. Importantly, the S&P 500 also delivered its best year-to-date performance through the third quarter since 1997.

That momentum could intensify or diminish depending on the events of Thursday, Oct. 31. Several Magnificent Seven companies report earnings around that time, and investors will receive an important economic data point on that day. All of those variables could impact the S&P 500, perhaps substantially.

Here are the important details.

A check point for the artificial intelligence boom on Oct. 31

Microsoft and Meta Platforms announce earnings results for the September quarter after market close on Oct. 30. They account for 10% of the S&P 500 by market value, so their financial reports could materially move the stock market the next day. Likewise, Amazon and Apple announce results after market close on Oct. 31. They account for 11% of the S&P 500, so their reports could have an equally profound impact on the market.

Detailed below are the consensus estimates for those companies.

• Microsoft: Wall Street expects revenue to increase 14% to $64.5 billion, and earnings to grow 4% to $3.10 per share. Analysts will be focused on the cloud computing segment, Microsoft Azure, looking for signs of accelerating growth amid the artificial intelligence (AI) boom.
• Meta Platforms: Wall Street expects revenue to increase 18% to $40.3 billion, and earnings to grow 19% to $5.24 per share. Analysts will be focused on engagement trends across its social media platforms, and they will be looking for market share gains in digital advertising.
• Amazon: Wall Street expects revenue to increase 10% to $158 billion, and earnings to grow 21% to $1.14 per share. Analysts will be looking for strong growth in the cloud computing unit, Amazon Web Services, as well as continued improvement in retail margins.
• Apple: Wall Street expects revenue to increase 6% to $94.5 billion, and earnings to grow 5% to $1.53 per share. Analysts will be looking for evidence that Apple Intelligence could drive an iPhone upgrade cycle.

Three of those companies — Microsoft, Meta, and Amazon — account for a third of Nvidia‘s revenue, according to Bloomberg. So, any commentary concerning AI spending could cause Nvidia’s stock to move sharply. And the knock-on effects could ripple through the entire technology and communication services sectors, which account for 40% of the S&P 500.

Important economic data forthcoming on Oct. 31

In addition to big tech earnings, investors will get an important macroeconomic data point on Oct. 31. The Bureau of Economic Analysis will announce how the Personal Consumption Expenditure (PCE) Price Index changed in September. The PCE Price Index is the Federal Reserve’s preferred measure of inflation.

Readers are probably familiar with another measure of inflation, the Consumer Price Index (CPI). Federal Reserve policymakers prefer the PCE Price Index because it tracks a broader range of prices. Economists expect the Oct. 31 report to show PCE inflation increased 2.2% in September.

Importantly, the Federal Reserve recently cut its benchmark interest rate for the first time in four years. Rate-cut cycles typically lead to upward momentum in the stock market, so long as the economy remains healthy. Since 1984, in situations where the U.S. economy did not suffer a recession within 12 months of the first rate cute, the S&P 500 has returned average of 18% during that 12-month period, according to JPMorgan Chase.

That said, if the September PCE inflation reading comes in above expectations on Oct. 31, the stock market could decline sharply. Futures market pricing data currently shows a 95% chance that policymakers will cut rates by a quarter point at the November meeting. But they may leave rates unchanged if PCE inflation accelerated in September, and that could throw the market in chaos because investors would spend the next month questioning the Federal Reserve’s next move.