A solid start to third-quarter 2021 earnings and some upbeat US economic data injected S&P500 bulls with renewed confidence last week.

The Index is up 2.8% since last Wednesday when earnings season officially kicked off with bulls clearly in a position of power ahead of another eventful week for US equity markets. Regardless of recent gains, the S&P500 is certainly not out of the woods yet. Let’s not forget that over the past few weeks, fears over slowing global growth, supply disruptions, inflationary pressures, and prospects of tighter monetary policy left investors jittery. This anxiety weighed on risk sentiment with the S&P 500 shedding almost 4.8% in September.

Nevertheless, third-quarter earnings may encourage investors to redirect their focus back towards company fundamentals while providing some key insights on the most important issues impacting corporate earnings.

The big question on the mind of many investors is: what effect rising inflation, supply chain disruptions, and labour shortages will have on earnings?

Big Week, Big Names, Big Gains?

With third-quarter earnings season in full swing, volatility may be the name of the game for the S&P500.

So far so good, earnings have painted an encouraging picture with big banks smashing analyst forecasts.

Financial heavyweights like JPMorgan, Bank of America, Morgan Stanley, Goldman Sachs, and Citigroup topped expectations last week.

Over the next few days, a cavalry of companies will be reporting their earnings with big names such as Johnson & Johnson, Netflix, Tesla, and Intel Corp among many others under the spotlight. If earnings from the majority of companies smash analyst estimates this week, the S&P500 has the potential to push higher with bulls aiming for fresh 2021 highs. Alternatively, a disappointing set of earnings may cap upside gains with the index slipping back towards the 100-day Simple Moving Average around 4380.

Keep An Eye On Economic Fundamentals 

After seeing how the S&P500 reacted to the positive US retail sales report last Friday, it may be a good idea to closely watch how the index reacts to data this week.

Interestingly, the US economic calendar is fairly light this week with weekly initial jobless claims on Thursday and October PMI’s on Friday. Should the pending data uplift investor sentiment, boost confidence over the US economy, and fuel risk appetite, this may inspire S&P500 bulls to push prices higher.

However, if the data ends up boosting taper expectations or sparking discussions around the Federal Reserve raising interest rates sooner than expected – this could weigh on the S&P500. Especially if Treasury yields rise.

Markets expecting a strong earnings quarter 

According to data from FactSet, third-quarter profit growth could total 30% which would be the third-highest quarterly profit growth rate for the S&P500 since 2010.

This sounds encouraging and may instill S&P500 bulls with renewed confidence if expectations match reality. However, concerns still linger over what impact supply chain disruptions may have on earning growth.

S&P500 charges above 50-day SMA 

After concluding last week above its 50-day Simple Moving Average, it looks like bulls are back in business. Prices are pushing higher on the daily timeframe with 4490-4500 acting as minor resistance. A breakout above these regions may inspire an incline towards the 2021 high at 4551.4. Beyond this point are uncharted territories yet to be claimed. Alternatively, a move back below the 50 -day Simple Moving Average could signal a decline towards the 100-day Simple Moving Average at 4380 and 4300, respectively.

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