Earnings season for the third quarter of 2019 is set to ratchet up during the third week of October, when JPMorgan Chase & Company (JPM) kicks off reporting for the big banks on the 15th.

While roughly two dozen companies in the S&P 500 will have already reported prior to the 15th, the bulk of Q3 earnings releases will arrive during the second half of October. 

Layering in the fact that the Federal Reserve is set to meet at the end of the month (Oct. 29-30), there’s more than a few reasons to believe that the volatility observed at the start of October could sustain itself at least through Halloween. 

That’s because aside from Q3 earnings and the Federal Reserve meeting, traders and investors will also be forced to wrestle with the ongoing U.S.-China trade war, the Brexit deadline (Oct. 31), and a broadening impeachment inquiry in Washington, D.C.

The early returns from companies that have already submitted their Q3 earnings reports also supports the notion that trading could be choppy going forward. 

FedEx Corporation (FDX) reported earnings on Sept. 17 and voiced concerns at that time about the ongoing global business climate. The numbers themselves weren’t well received, and the stock declined from pre-earnings levels of over $170/share all the way down to $140.78 in the weeks after. 

On the other end of the spectrum, PepsiCo Inc. (PEP) reported positive results on Oct. 3 that beat comfortably on profitability and revenue. The main headline from that earnings report was that heavy investments in marketing and advertising have paid off handsomely—increasing brand awareness and overall sales volumes. PEP shares are up over 25% so far in 2019, which is well beyond the roughly 16% gains observed in the S&P 500. 

Another big player that has already weighed in on third quarter results is ExxonMobil Corporation (XOM). 

In this case, however, leaders at ExxonMobil elected to release a warning on Q3 profitability ahead of the actual earnings release, which is scheduled for Oct. 31. The XOM profit warning indicated that lower average prices for crude oil in 2019 had hurt their bottom line, despite the fact that crude prices skyrocketed—albeit briefly—in the wake of recent drone attacks in Saudi Arabia.

Given that XOM is the bellwether of the XLE, accounting for nearly 23% of the ETF, it’s likely that additional earnings disappointments will follow. 

Coming on the heels of the ExxonMobil profit warning was the announcement that CEO Bob Dudley, of British Petroleum (BP), will step down in February of 2020. While BP hasn’t yet preannounced negatively on earnings (like XOM), the fact that the CEO is stepping down certainly can’t be a strong signal that the company is operating at peak efficiency. BP is also scheduled to formally report earnings at the end of October. 

Taking a 10,000-foot view of earnings, recent drops in both the ISM U.S. manufacturing purchasing managers’ index and the ISM U.S. non-manufacturing purchasing managers’ index (respectively known as ISM manufacturing PSI and ISM services PSI) have likewise cast a dark shadow on Q3 earnings season. 

The Institute of Supply (ISM) Purchasing Managers Indexes (PSI) are widely followed economic indicators that are derived from monthly surveys of private companies. Both the manufacturers PSI and the services PSI came in as weaker than expected when last month’s data was released during the first week of October. 

With data suggesting that strength in the U.S. economy is waning, investors and traders may be even more unforgiving in their interpretation of negative earnings reports during this particular quarter.

This is especially true given the Q3 earnings season is coming on the heels of what could already be described as an “earnings recession” in the United States. This term is used to describe corporate earnings environments which see back-to-back declines in aggregate earnings per share (EPS). 

If Q3 earnings come in as a year-over-year decline, as expected, that would mark the first consecutive three-quarter decline since Q4 2015-Q2 2016.

In sum, the table now looks set for a rather dramatic October in the global financial markets. Traders seeking to follow detailed market action on a daily basis are advised to tune into TASTYTRADE LIVE.

Additional information relating to trading corporate earnings is available in the tastytrade  LEARN CENTER.

Sage Anderson is a pseudonym. The contributor has an extensive background in trading equity derivatives and managing volatility-based portfolios as a former prop trading firm employee. The contributor is not an employee of luckbox, tastytrade or any affiliated companies. Readers can direct questions about topics covered in this blog post, or any other trading-related subject, to support@luckboxmagazine.com.