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Apple ( AAPL ), Microsoft ( MSFT ), Alphabet among 'Magnificent 7' set to

report

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Fed expected to cut rates on Wednesday by quarter-point

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US-China trade tensions, government shutdown also in focus

By Lewis Krauskopf

NEW YORK, Oct 24 (Reuters) - The U.S. stock rally

confronts a potentially consequential week to keep its momentum

heading into year-end, including a flood of corporate results

headlined by megacap companies and a likely interest rate cut by

the Federal Reserve after its two-day policy meeting.

U.S.-China trade tensions could come to a head in the coming

days, while a persistent U.S. government shutdown further

unsettles the backdrop for investors.

Stocks have weathered increased volatility this month, with

the S&P 500 posting an all-time closing high on Friday,

after a 36% climb since its low for the year in April. The

benchmark index is up over 15% year-to-date.

Given that the market has rallied for several months without

a particularly significant decline, equities could remain choppy

in the days ahead, said Chris Fasciano, chief market strategist

at Commonwealth Financial Network.

"What we need to see is continued earnings beats and

corporate America talking positively about the economy,"

Fasciano said. "When people start to get nervous, it's when they

see consumer confidence coming down, or business confidence

coming down."

Third-quarter earnings season is off to a solid start

overall, despite disappointments this week from companies such

as streamer Netflix ( NFLX ) and chipmaker Texas Instruments ( TXN )

.

Including results from 143 companies that have reported, S&P

500 profits are estimated to have increased 10.4% from a year

ago, according to LSEG IBES data as of Friday. So far, 87% of

companies have topped analysts' earnings estimates and 82% have

beaten revenue estimates - both higher than historically typical

rates.

Next week is the busiest of the season, with over 170

companies expected to report. They include Microsoft ( MSFT ),

Apple ( AAPL ), Alphabet, Amazon ( AMZN ) and Meta

Platforms ( META ), five of the "Magnificent Seven," a group of

companies with huge market capitalizations whose shares dominate

equity indexes and which overall have posted outsized profit

growth over the past couple of years.

Their profit edge over the rest of the index is narrowing,

but the Magnificent Seven are still expected to post stronger

results this period. Earnings for the group are expected to rise

16.6% against an 8.1% rise for the rest of the index, according

to data this week from Tajinder Dhillon, senior research analyst

at LSEG.

A number of the megacap companies are also key players in

the artificial intelligence industry, enthusiasm for which has

been a main driver of stock market performance.

"The factor that is probably going to have the most

influence between now and the end of the year is going to be

these big tech (reports)," said Anthony Saglimbene, chief market

strategist at Ameriprise Financial. "The hurdle rate is very

high for these companies coming into next week's earnings."

Other companies due to report results next week include

drugmaker Eli Lilly ( LLY ), oil majors Exxon and

Chevron ( CVX ) and payment firms Visa and Mastercard ( MA )

.

The Fed is widely expected to lower its current benchmark

rate of 4%-4.25% by another quarter percentage point when it

decides on policy on Wednesday, a view supported by

tamer-than-estimated inflation data on Friday. With that rate

move already factored into asset prices, markets are likely to

be more sensitive to any forward-looking language from Fed Chair

Jerome Powell, with the central bank expected to cut rates

further at its next meeting in December.

"The biggest impact would be if the Fed gave any signs that

they will deviate from their rate-cutting path," said Dominic

Pappalardo, chief multi-asset strategist for Morningstar Wealth.

Possibly clouding the Fed's decision-making ability is the

lack of data provided by the government since its shutdown began

on October 1, including delays in employment releases at a time

of simmering worries about the health of the labor market.

An increasingly extended shutdown - which has already lasted

longer than the average length of past shutdowns - also likely

poses more risk to economic growth, said Art Hogan, chief market

strategist at B Riley Wealth.

"The longer it drags on, the more the market will not be

able to ignore it," Hogan said.

Investors also largely had shrugged aside trade-related

risks in recent months, but renewed U.S.-China rifts

have brought tensions between the world's two largest economies

back to the fore.

U.S. President Donald Trump earlier this month threatened

significantly higher tariffs on China to take effect November 1,

after Beijing imposed export controls on rare earths. Investors

will be watching developments around an anticipated meeting

between Trump and Chinese leader Xi Jinping in the coming week

to see if the nations can calm tensions between them.

"If tariffs rise to the levels that President Trump is

threatening on China ... you would see a more volatile and

probably a more negative reaction in the market, especially if

(investors) anticipate that that's going to be lasting,"

Saglimbene said.