Delta, debt and the answer to doubts about deceleration

COVID-19 delta variant infections may have peaked. The debt ceiling showdown on Capitol Hill may have been delayed. Now, investors are turning to quarterly financial results.

The third quarter was hectic. The rise in the delta in July and August dampened consumer appetite for travel and contributed to the slowdown in job creation by employers. September saw a return to familiar discord in Washington as the country hit its debt ceiling amid debate over trillion-dollar spending on traditional and social infrastructure. By the end of the quarter, the talk of the Federal Reserve closing in on the withdrawal of its extraordinary economic support intensified.

Oh, and add in the concerns of a huge Chinese real estate developer struggling to pay off debts and the current global supply chain challenges.

This has helped to cast doubt on the pandemic profit surge is about to end.

Of course, the pace of earnings growth will slow after the sharp decline a year ago when the economy reopened. Still, profits of S&P 500 companies are expected to rise 26% from a year ago, according to FactSet Research. Fourth quarter results are expected to be up 20%. This would represent the slowest growth this year.

This is the outlook investors will focus on as the big banks mark the unofficial start of the third quarter earnings season of the week ahead.

Delta infections are on the decline. Relaxation in Congress, while temporary, eases the tension for now. The market feels comfortable with the inevitability of the Fed to reduce its bond buying problem. But inflation is getting sticky. Businesses need to raise wages to attract workers. The supply chain remains tight. Energy prices are high. Trade tensions persist with China. And there will certainly be other surprises for the stock market to absorb.

Long-term investors know that doubts are an integral part of the investment environment. Investors will listen to see how companies are trying to sidestep the concerns.

Financial reporter Tom Hudson hosts “The Sunshine Economy” on WLRN-FM in Miami, where he is vice president of information. He is the former co-presenter and editor of the “Nightly Business Report” on public television. Follow him on Twitter @HudsonsView.