### Wall Street Prepares for Muted Market Response as Major Banks Report Earnings

As the third quarter earnings season commences, all eyes are on some of the nation's largest banks, which are set to announce their quarterly results this Friday. However, while Wall Street projects a 4.7% growth in earnings — marking the fifth consecutive quarter of year-over-year growth — this rate of increase would be the slowest since Q4 2023.

Deutsche Bank's chief equity strategist, Binky Chadha, anticipates a subdued market reaction amid these earnings reports. Historically, the S&P 500 has seen a 2% rise during the first four weeks of earnings season, but Chadha believes the recent robust market performance and elevated positioning suggest a different outcome this time.

"Earnings seasons are typically positive for equities, but the strong rally and above-average positioning going in argue for a muted market reaction," Chadha noted in a communication to clients. Several external factors are contributing to this cautious outlook, including escalating tensions in the Middle East that have driven up commodity prices, the impending presidential election which is expected to fuel market volatility, and continued debates over the economic trajectory and Federal Reserve interest rate policies.

Additionally, questions over the sustainability of a stimulus-driven rally in Chinese stocks add another layer of uncertainty. Evercore ISI's Julian Emanuel emphasized that this combination of macroeconomic factors and their unpredictable nature would likely overshadow individual company performance this earnings season.

Emanuel also highlighted that earnings seasons in election years generally do not produce significant short-term gains for stocks. Historical data from the last four election cycles, starting from 2008, indicate negative returns for the S&P 500 in October, reinforcing this trend.

"Past earnings seasons during election years have seen stocks react less to their sales and earnings per share results, which reflects the broader market's focus on the upcoming election's implications," Emanuel explained in a recent note to clients.

With this complex backdrop, investors might be cautious, contributing to an atypical market performance during this earnings reporting period.