State Street’s Michael Arone is ‘uncomfortably bullish’ on the U.S. stock market.

Stocks are approaching a clear test after investors were left in the fog of a government shutdown this month and rattled by fresh tariff fears Friday.

This coming week, Wall Street banking giants will mark the unofficial start of company earnings reports for the third quarter, providing a potential catalyst for the market amid a “vacuum of government data,” said Michael Arone, chief investment strategist for State Street Investment Management, in an interview. He described himself as “uncomfortably bullish” on the U.S. stock market, noting that analysts have upped their estimates for S&P 500 companies’ quarterly results.

“The bar has been raised at a time when prices are at an all-time high and valuations are stretched,” said Arone. “The margin for error is small and the risk of disappointment is large.”

Due to the shutdown, investors went without a closely watched U.S. jobs report from the Bureau of Labor Statistics in early October. And now the BLS is delaying the release of inflation data from the consumer-price index, originally expected this coming Wednesday, to Oct. 24.

The delay of closely watched government data such as the CPI inflation report just adds “fog” to the general confusion of the U.S. government shutdown, according to David Kelly, chief global strategist at J.P. Morgan Asset Management. “The real question is to what extent tariffs are feeding through to higher core goods prices,” he said in a phone interview.

Upcoming earnings reports from JPMorgan Chase, Wells Fargo, Citigroup, Goldman Sachs on Tuesday, followed by results from Bank of America, and Morgan Stanley on Wednesday, will provide some insights into the economy and consumers along with a window into profitability on Wall Street.

“The banks are a look in on some hard economic realities going on in the country, especially big banks like JPMorgan and Wells Fargo,” said Joe Tigay, portfolio manager of the Rational Equity Armor Fund, in a phone interview. The banks’ results, he said, “will be scrutinized a little bit more carefully in the absence of the jobs data.”

State Street’s Arone said that he anticipates third-quarter earnings results will be generally “strong” for the banks and S&P 500 companies, even if he worries about the potential for disappointment.

Analysts have slightly increased their earnings-per-share estimates for S&P 500 companies for the third quarter for the first time since the fourth quarter of 2021, according to an Oct. 3 report from FactSet’s senior earnings analyst John Butters. Typically, analysts lower their earnings estimates, making it easier for companies to clear that bar, Arone noted.

Buy the dip?

For the U.S. stock market, third-quarter results from banks this coming week will probably be “all the more important because the government has shut down,” which may be reflected in companies’ upcoming earnings calls with analysts, according to Liz Ann Sonders, chief investment strategist at Charles Schwab.

“There may be some more geared questions from analysts to the companies to try to frame what the macro backdrop is,” Sonders said in a phone interview. She’s also expecting “a lot more pointed questions around capex” and spending on artificial intelligence, and whether companies are getting “any more productivity benefits” from AI spending.

While the fundamentals of the bull market seem “solid,” the S&P 500 may be vulnerable as it hasn’t seen a major pullback since surging from its April low, according to Arone. The index fell sharply on Friday, but it was up 31.5% from its trough on April 8, which it had touched after Trump’s rollout of “liberation day” tariffs earlier that same month roiled markets.

The selloff in U.S. stocks on Friday saw the S&P 500 post its biggest daily drop since April 10, according to Dow Jones Market Data. The S&P 500 dropped 2.7%, while the Dow Jones Industrial Average slid 1.9% and technology-heavy Nasdaq Composite tumbled 3.6%. All three major benchmarks booked weekly losses, with the S&P 500 down 2.4%.

“You didn’t think we’d get through October without a dust-up did you?” Bespoke Investment Group wrote in a note Friday. “Historically, October has been the most volatile month of the year,” said Bespoke, questioning whether Friday’s slump was about Trump’s social-media post on a potential increase in tariffs on Chinese goods, “or investors looking for an excuse to sell.”

Still, the S&P 500 ended Friday just 3% below its record close on Oct. 8.

The third quarter has appeared “pretty good” for the economy, which will probably come through in the corporate earnings season, including for the banks, according to Kelly.

On Friday, the S&P 500’s financial sector dropped 2.2%, while information technology posted a larger loss of 4%, according to FactSet data.

“I think people are becoming increasingly nervous about the fact that Big Tech is looking a little 1999ish,” said Kelly. But “you’re going to have to have some sort of shock to cause this long bull market to reverse.”

If the market has a bad day, or even a rough two weeks, it appears that investors’ urge has been to “run in and buy the dip” on the assumption that stocks will bounce after a pullback, he said.