Inside Markets — Consolidation

The SPX has extended into technical channel resistance in the 6725-6805 zone and will likely consolidate gains in the information vacuum preceding Q3 earnings season. Consolidation implies downside in the 1-2% range with near-term technical support about ~3.5% below current levels (6445-6525). October tends to be a volatile month, and a spike in implied volatility (VIX>22) is always a near-term risk for equities. However, fund flows begin to improve toward the end of the month (week of 10/27) as companies emerge from the current buyback blackout period. Given the uncertain macro-outlook, company buybacks ran below pace at the beginning of the year and could now accelerate inQ4 to meet calendar year goals. Consensus is looking for CQ3 SPX earnings growth to decelerate to +6% from +11% in Q2. It’s reasonable to expect some deceleration in Q3 earnings growth given a lighter FX tailwind and increased tariff payments, but +6% should be a low bar given faster top line growth.