Across the S&P 500, 111 companies reported earnings last week, and 75% of S&P 500 companies reported better-than-expected earnings for the quarter. The third-quarter earnings season is entering its busiest reporting week, with 170 S&P 500 companies scheduled to report results.

The Magnificent 7, comprised of Microsoft (MSFT), Meta Platforms (META), Amazon.com (AMZN), Apple (AAPL), NVIDIA (NVDA), Alphabet (GOOGL) and Tesla (TSLA), will feature prominently in the next week of earnings. Five of the seven companies report results this week: Alphabet on Tuesday, Meta and Microsoft on Wednesday, and Amazon and Apple on Thursday. Tesla reported much better than expected earnings last week, and NVIDIA won’t release its report until late November. Since these companies are a key driver of earnings growth and represent a significant percentage of the S&P 500’s market capitalization, quarterly results will be crucial to stock performance this week.

Other companies scheduled include McDonald’s (MCD), Visa (V), Starbucks (SBUX), Merck (MRK), Mastercard (MA), Uber Technologies (UBER), Chevron (CVX), ExxonMobil (XOM) and Berkshire Hathaway (BRK /A, BRK/B).

The S&P 500 fell 1% for the week. The Magnificent 7 gained 3.5%, mainly due to a 22% gain at Tesla, which reported excellent earnings and a positive earnings outlook.

After a long trend in the opposite direction due to monthly jobs report better than expectedthe cyclical stocks most sensitive to the economy underperformed the defensive stocks less exposed to the economy.

According to FactSet, the financials and consumer discretionary sectors were the biggest contributors to improving earnings growth last week. Within the financial sector, Capital One Financial (COF), KKR & Co (KKR), Northern Trust (NTRS), and Raymond James Financial (RJF) made significant positive contributions. The increase in industrial profits mainly comes from General Motors (GM) and Tesla (TSLA).

Compared to expectations at the end of the quarter, the energy, healthcare and industrials sectors were the biggest drags on S&P 500 earnings growth. Earnings estimates for energy companies including Chevron ( CVX) and Exxon Mobil (XOM), were cut, bringing energy sector estimates down to -27.3% year over year after expecting -19.1% at the start of the earnings season.

Boeing (BA) reported worse results than previously announced preliminary results, sending industrial sector estimates to -11.0% year over year, compared to 1.3% growth at the start of the earnings season.

Healthcare profits, expected to be a bright spot this quarter, fell to an expected growth rate of 5.8%, down from 11.2% year-over-year at the end of the quarter. The main culprit was Eli Lilly (LLY), which saw its earnings estimates revised downward after announcing that acquisition-related fees for ongoing research and development (IPR&D) would reduce earnings by about 2 .83 billion dollars, or $3.08 per share.

Sales growth is closely linked to nominal GDP growth, which combines economic growth after inflation (real GDP) and inflation. At this point in the earnings season, sales growth has exceeded expectations, thanks to strong year-over-year nominal GDP.

Mixed earnings performance so far has been below quarter-end expectations. Combining actual results with consensus estimates from companies that have yet to report, the blended earnings growth rate for the quarter is +3.6% year-over-year, below expectations of +4. 4% at the end of the quarter, but an improvement from the previous week’s 3.4%.

Beyond the profits, this Friday marks the publication of the monthly employment report for October. The one from last month September jobs report marked a positive shift in sentiment about how quickly the economy could slow and allayed much of the fears about a looming economic recession. The Atlanta Fed’s current estimate for third-quarter GDP growth is 3.3%. Although better-than-expected growth has supported earnings estimates and therefore stock prices, bond yields have risen sharply from recent lows.

The additional rate cuts expected in 2024 are two successive cuts of 25 basis points (0.25%) in November and December. Although the probability, based on the price of Fed Funds futures contracts, remains high, it has fallen from higher conviction levels as recent economic data has been robust. A weaker or stronger than expected monthly jobs report this week could have a significant impact on rate cut expectations.

The busiest week of the earnings season saw five Magnificent 7 companies report earnings. Given the higher expected earnings growth rates and market capitalization, the Magnificent 7’s quarterly results and outlook will be crucial to this earnings season and to stock performance this week. Management’s earnings outlook remains critical, with expectations high and the S&P 500 selling at a relatively high price, 23 times higher than year-over-year earnings estimates.