Friday’s announcement of a “skinny” trade deal with China provided a positive jolt to sentiment, but left us wondering, what now? The announcement was not a full-blown deal, so much as a de-escalation. Phase One of the deal is still a framework and it does not appear to address many of the contentious issues that are needed to make a deal meaningful (i.e. intellectual property rights and enforcement mechanisms). Postponing the tariffs that were scheduled for October 15th and ostensibly taking the December 15th hikes off the table will improve holiday spirit, but the move also signals that the White House is unwilling to accept the economic damage more tariffs would cause. Markets responded to Friday’s news with immediate optimism, which moderated, as details of the truce became known.

What now? Investors will be captivated by earnings season, which begins in earnest on Tuesday. Profits are the life-blood of asset values, and the profit picture for the coming quarter appears to be less than stellar. Factset Earnings Insight estimates third quarter profits for the S&P 500 will decline 4.6% compared with the same quarter a year ago. According to Factset’ s earnings methodology, if profits do decline, it will mark the first time the index has reported three quarters of profit decline since the second quarter of 2016. That quarter marked the end of the so-called profit recession and the end of a violent market correction. The stock market has reacted differently this time around due to the belief that the trade war is creating a transitory headwind to profitability.

According to Factset, the forward 12-month P/E ratio for the S&P 500 is 16.6, exactly in-line with the market’s five-year average.

What’s next? Big companies will kick off the Q3 reporting season in earnest this week. Following is a calendar of expected earnings announcements for some of the largest S&P 500 companies.

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