NEW YORK, Oct 25 (Reuters) - The rally in U.S. stocks is

wobbling as it confronts a stretch of potentially market-shaking

events, starting next week with corporate results from tech

titans and the closely watched employment report, while the U.S.

election is also nearing.

The benchmark S&P 500 is up about 22% on the year,

but has edged back from record-high levels in recent days.

Still, equities remain at elevated valuations, which could

make stocks vulnerable should any of the near-term market events

fall short of expectations.

The S&P 500's price-to-earnings ratio, based on earnings

estimates for the next 12 months, is at 21.8, near its highest

level in over three years, according to LSEG Datastream.

"People will be on pins and needles for most of next week,"

said Peter Tuz, president of Chase Investment Counsel Corp. "The

market is expensive ... Any time you have an elevated market the

potential for a bigger downdraft exists if something

disappointing happens."

Five of the "Magnificent Seven" group of megacap companies that

have played a major role in driving the market over the past

couple of years are set to report quarterly results next week:

Google parent Alphabet, Microsoft ( MSFT ), Facebook

owner Meta Platforms ( META ), Apple ( AAPL ) and Amazon ( AMZN )

.

Because of their massive market values, those companies jointly

account for 23% of the weight of the S&P 500, meaning market

reaction to their results could sway broader indexes in coming

days.

The Magnificent Seven stocks trade an average forward P/E

ratio of 35 times, as the companies overall have posted much

stronger profit growth than the rest of the S&P 500. But that

gap is expected to close in coming quarters.

"I see a handful of companies that deservedly have very high

multiples but if that reason for being deserved falters then

there's a lot of room below for those stocks to fall," said

Bryant VanCronkhite, senior portfolio manager at Allspring

Global Investments.

Investors will be looking across these megacap companies to

see if their increased spending on artificial intelligence

capabilities is starting to show benefits.

AI "hyperscalers" -- Microsoft ( MSFT ), Amazon ( AMZN ), Alphabet and Meta -- are

set to increase capital expenditures by 40% this year, while

such capex spending for the rest of S&P 500 companies are on

pace to fall 1% in 2024, according to BofA Global Research.

Tesla, the first of the Magnificent Seven to report

results, saw its shares surge on Thursday after CEO Elon Musk

said he expects vehicle sales to grow 20% to 30% next year.

Next week is the busiest week of the third-quarter reporting

season overall, with well over 150 S&P 500 companies set to post

results.

The U.S. jobs report on Nov. 1 comes as investors are

weighing whether a stronger-than-expected economy could lead to

fewer interest rate cuts by the Federal Reserve than initially

anticipated.

Economists expect the employment report to show that the

economy created 140,000 jobs in October, according to Reuters

data. The report could be "messy" in the wake of two significant

storms, but the wages data will be important to watch, said

Nanette Abuhoff Jacobson, global investment strategist at

Hartford Funds.

"If we saw an uptick in wages, that would be concerning,"

Jacobson said. "The bond market is already getting a whiff of

possibly stronger growth than expected, possibly inflation

rearing its ugly head again, and the possibility of the Fed not

being able to ease as much as what's priced in."

Benchmark Treasury yields climbed to three-month highs this

week, reflecting expectations of a potentially less dovish Fed

as well as possibly increased spending under the next president.

Bets on Donald Trump prevailing have risen on prediction markets

in recent weeks, with the Republican seen as backing policies

including tariffs that could lead to higher inflation.

The run of market-sensitive events continues the following

week, with Election Day on Nov. 5 and the Fed's next monetary

policy decision on Nov. 7, which could put investors

increasingly on edge in the coming days.

The Cboe Volatility Index, an options-based indicator

of demand for protection from market swings, was last around 19,

after edging below 15 late last month.

"Investors should expect market volatility in the lead-up to

the U.S. presidential election," analysts at UBS Global Wealth

Management said in a note on Thursday. As Nov. 5 "inches closer,

market sentiment is likely to stay vulnerable."

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