US30 index risk - a pivotal week of US earnings ahead

Head of Research

6 Oct 2023

Next week we get the US big money centres out with quarterly earnings reports. The focus falls on asset quality, loan growth/contraction, net interest margins (NIM) and any commentary on the recent tightening of broad financial conditions.

US Q3 earnings – Citi, JPM, BAC, WFC, UnitedHealth, WFC.

When we look at the companies included in the US30, there are only two banks (of the 30 constituents) - Goldman Sachs and JP Morgan. However, the US30 holds an incredibly high relationship with the XLF ETF (S&P financial sector ETF), with a 10-day correlation of 93%. So, with so many of the major financial institutions reporting, and assuming this incredibly tight relationship holds up, the US30 should take its inspiration from the movement in the US banks.

Another important risk for US30 traders this week is how the market reacts to earnings from United Health (UNH - report on 13 October). UNH commands a massive 10% weight on the US30, making it arguably the biggest weight on the index.

Preview

UNH is not a stock that CFD traders look at as closely as say a more volatile Tesla or Nvidia, given its more defensive price action. It’s one for the range traders, where buying into $460 and shorting into $520 has worked well over the past 12 months. However, given the weighting, US30 traders should be aware of the influence the stock can offer.

Preview

The market prices an implied move of 2.6% move on the day of UNHs reporting, which is in fitting with the average price change over the past 8 quarterly reporting periods. UNH has seen some large percentage moves over earnings and recall in the last earnings report the stock rallied 7.2% - so a sizeable rally/decline would influence the US30 given the weight.

While macro factors such as moves in bond yields, the USD and oil prices will influence the US30, one can see that earnings this week could also play a major role – time to buy the dip, or are we about to see a leg lower in the index?

Trader Thoughts – observations ahead of US payrolls

Nonfarm Payrolls

Commodities

USD

JPY

Volatility

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