Something mind-boggling happened Sunday. Elon Musk’s SpaceX not only launched a massive rocket into the air, but it caught it with a mechanical arm as it landed back to Earth.

More on that later.

Today’s edition features a guest column from veteran financial journalist Mark Reeth. He’s the editor of Morning Brew’s excellent financial dispatch — which I highly recommend for anyone in the market for a closing bell read.

Let’s dive in.

‘Tis the season

Mark Reeth is the editor of Brew Markets, Morning Brew’s daily stock market newsletter breaking down all things investing, every afternoon. Sign up free here.

Time flies when geopolitical turmoil, contentious elections, and interest rate cuts keep investors awake at night.

The fourth quarter of 2024 is upon us, and earnings season officially began with big banks JPMorgan and Wells Fargo announcing their latest numbers on Friday. 

(Quick recap: They were pretty good.)

More announcements arrive fast and furious this week. Before we dive in, let’s take a step back and look at the big picture.

Wall Street’s Q3 expectations

Broadly, this quarter’s earnings are expected to be what the pros would call “meh.” 

FactSet recently noted that, compared to the historical average, Wall Street analysts have lowered their earnings per share (EPS) expectations heading into this quarter more than usual. 

While the 5-year average decrease in Q3 EPS estimates runs at 3.3%, this year analysts cut their estimates by 3.9%

Now, that’s not to say this will be a terrible quarter.

FactSet also noted that the S&P 500 as a whole should see a 4.2% increase in earnings compared to the same quarter a year ago. 

However, that’s slower than the 11% year-over-year earnings growth that the S&P 500 enjoyed in the second quarter.

The problem is that stocks are caught at a crossroads this quarter. On one hand, lower consumer spending and high inflation hurt profits. 

Just look at PepsiCo, an early reporter that announced softer sales last quarter as customers pulled back on spending.

Meanwhile, interest rate cuts look set to spur on economic growth.

Rate-sensitive sectors like manufacturing and real estate should get a big boost from lower rates, though this earnings season may be too early for cuts to help bottom lines.

So, the bar is low for Q3 earnings — which may actually be a good thing for investors, since even a small earnings beat will likely surpass expectations enough for a stock to see a solid boost.

But which stocks, exactly?

Watch these sectors

Even if Wall Street isn’t betting on a blowout earnings season, Bank of America analysts are monitoring a handful of earnings surprises to make your portfolio pop.

They searched for stocks with strong EPS & sales revisions and guidance, as well as sectors with a higher ratio of positive to negative earnings surprises in the previous quarter. 

Their research points them to stocks in the information technology, real estate, and financials sectors as the most likely to post positive earnings surprises this quarter, while stocks in the energy and consumer staples sectors should fall flat.

For more stock market analysis and bad jokes, subscribe to Brew Markets. The Opening Bell Daily team reads Mark’s work every afternoon. We think you’d like it too.

Elsewhere:

📈 Stocks are at records. The Dow surged 400 points Friday to hit at an all-time high and the S&P 500 rallied to close above 5,800 for the first time ever. Meanwhile, shares of JPMorgan and Wells Fargo spiked after upbeat earnings. All told, each of the three major averages secured their fifth winning weeks in a row.

🚀 SpaceX caught a giant Starship booster as it landed. It was the fifth Starship test flight for the company and it marked a stunning milestone in Musk’s vision for fully reusable rockets and a multi-planetary society. (CNBC)

🇨🇳 China’s market outlook failed to impress. Global investors tuned in to the Finance Ministry’s highly-anticipated Saturday briefing but it didn’t include the firepower some expected. Authorities promised more support for the property sector and hinted at greater government borrowing, though they did not reveal a splashy dollar figure for fresh stimulus. (Bloomberg)

🏦 Will the Fed skip a November rate cut? Following sticky inflation reports and stronger-than-expected jobs numbers, there’s been growing speculation the central bank may hold interest rates steady next month. Bond investors, for their part, have gone on defense as doubts around the next cut rise. (Bloomberg)

Rapid-fire:

• Berkshire Hathaway has added to what’s been a losing stake in Sirius XM (Barron’s)

• Lennar and KB Home — two of the largest US homebuilders — missed Wall Street estimates on net new home orders (Yahoo Finance)

• Boeing plans to cut 10% of its staff, or about 17,000 jobs (CNBC)

• Wall Street continues to wonder whether JPMorgan’s Jamie Dimon will become Treasury Secretary (Bloomberg)

• A Trump-supported cryptocurrency will begin trading this week as the election nears (CoinDesk)

• Stocks’ epic bull market just turned two years old and history suggests it’s only about halfway done (Opening Bell Daily)

Last thing:

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