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The $8 trillion rally of the S&P 500 Index is set to face a crucial test this week as traders navigate through economic fears, uncertainties surrounding interest rates, and anxieties related to the upcoming election.

What Happened: The forthcoming corporate earnings season is expected to be a key determinant of whether equities can sustain their momentum.

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As per a Bloomberg report, the S&P 500 Index has seen a surge of approximately 20% in 2024, adding over $8 trillion to its market capitalization. This significant increase has been largely driven by expectations of a relaxed monetary policy and strong profit forecasts.

However, analysts are now revising their expectations for third-quarter results. Companies in the S&P 500 are expected to report a 4.7% increase in quarterly earnings from a year ago, a decrease from the 7.9% projections made in July, as per Bloomberg Intelligence data.

Adam Parker, founder of Trivariate Research, highlighted the significance of this earnings season, and told the outlet, “We need concrete data from corporates.”

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Investors are eager to understand if companies are postponing spending, if demand has slowed, and how customers are reacting to geopolitical risk and macro uncertainty.

Major companies, including Delta Air Lines Inc., JPMorgan Chase & Co., and Wells Fargo & Co., are scheduled to release their results this week.

Despite the strong rally and above-average positioning going into this earnings season, Binky Chadha, chief US equity and global Strategist at Deutsche Bank Securities Inc., expects a subdued market reaction.

“Estimates got a little bit too optimistic, and now they’re pulling back to more realistic levels,” stated Ellen Hazen, chief market strategist at F.L.Putnam Investment Management.

Why It Matters: Investors are facing numerous challenges, including the upcoming US presidential election, the Federal Reserve’s decision to lower interest rates, and an escalating conflict in the Middle East that is raising inflation concerns.

However, there is a glimmer of hope. The lowered bar for earnings projections provides companies with a greater chance to exceed expectations.

Bloomberg Intelligence suggests that a strengthening earnings cycle should continue to counterbalance weak economic signals, potentially tipping the scales for equities in a positive direction.

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This article S&P 500's $8T Surge Faces Big Test With This Week's Earnings Releases originally appeared on Benzinga.com