The stock market is on edge as attention shifts towards the earnings season, whose outcome analysts expect to have a significant impact on direction of trade.  The broader market is poised to experience sharp swings as over 100 of the S&P 500 companies are poised to report their quarterly and full-year earnings report.

Earnings Season

The busy earning session could mark a pivot point even as the market continues to bounce back from one of the worst routs in recent years. A good number of stocks shed a substantial amount of market value in the last quarter of 2018. Trade war tensions compounded by interest rate hikes concerns all but fuelled a sell-off wave in the market.

Fast forward calmness has crept back, waiting to see how investors will react to earnings reports from various counters.  Thursday will mark the commencement of what is dubbed as a pivotal earning session with over three dozen S&P 500 poised to report.  Some of the big companies reporting include Boeing Co (NYSE:BA), McDonald’s Corp (NYSE:MCD)’s, Microsoft Corporation (NASDAQ:MSFT), Visa Inc.  (NYSE:V), and Exxon Mobil Corporation (NYSE:XOM)

The outcome of earnings reports will have a huge say on benchmark indices direction of trade after an excellent run in recent weeks.  The Dow and Nasdaq Composite have bounced back after registering one of the biggest declines since 2008 in October of last year.

The Dow has gone on to register a five-week winning streak that has seen it stand just 7.8% off its October highs of 26,828.39. The S&P 500, on the other hand, has recouped a substantial amount of losses. It is now 9.1% off its record highs of 2,930. The NASDAQ composite is 11.7% shy of its peak of 8,109.69.

Earnings Beat Expectations

The indices look set to continue powering high as companies continue to post impressive financial results. Over 70% of the 112 S&P 500 companies that have reported have topped earnings estimates all but fuelling investor confidence that the earnings trend beat will persist.

While 58% of the companies have topped revenue estimates, they still fell below the long-term average of 60% for the past four quarters. However, it is still a solid performance given the headwinds experienced in the fourth quarter, which analysts expected to have a severe impact on earnings. Amidst the bullish tone in the stock market, analysts at Morgan Stanley are calling for caution.

“We are hesitant to draw a bullish signal for the broader market given that a) the bar for ‘beats’ has been substantially lowered and b) those areas of the market seeing the biggest rallies were also those where valuation was at extremes, which is not true of the entire market,” the Morgan Stanley strategists wrote.,” Morgan Stanley in a statement.

Market Headwinds

Most stocks have rallied by between 10-15% after taking a hit early in the fourth quarter of last year.  The rally has made some stocks less attractive at current levels, given the headwinds that continue to clobber the broader financial markets.

Signs of slowing economy in Beijing and the rest of the world is one of the biggest headwinds that could hurt the excellent run. The slowdown continues to fuel fears among the investment community whether the stock market has run its course after one of the longest bull runs.  A standoff between China and the U.S on trade talks is another hurdle that continues to rattle investors.

In addition to the trade war tensions, investors are also paying close watch to Federal Reserve policy plans especially when it comes to rate hikes.  Britain exit plan from the European Union is another development that could have an impact in the direction the markets move going forward.