There's a positive tone to markets at the start of the week. Investors appear to have shrugged off the recent bout of credit angst and revived trade jitters, leaving the S&P 500 SPX likely to open Monday's session only about 1% shy of its record closing high.
Helping the bullish mood is a belief that the White House will continue to row back on statements that initially cause a market wobble. Bonds are also providing support, with the benchmark 10-year Treasury yield just above 4%, near 12-month lows, as investors express less concern about Washington's fiscal profile and look ahead to more interest rate cuts by the Federal Reserve.
But arguably the most important tailwind for equities is optimism regarding the third-quarter corporate earnings season. With 12% of the S&P 500 companies having reported results so far, some 86% delivered a positive earnings per share surprise - which is above the five-year average of 78% - and 84% have reported a positive revenue surprise, according to John Butters, senior earnings analyst at FactSet.
Much of the focus again will be on AI and the sector's darling, Nvidia (NVDA), not just because the chip maker commands great heft in terms of wider investor sentiment, but its 7.4% weighting in the S&P 500 means it can significantly impact broader equity barometers.
However, Nvidia doesn't report for another month. Coming sooner is Apple $(AAPL)$, the market's third biggest company by market capitalization, and erstwhile bellwether, which reports on October 30. And that's our call of the day from the strategy team at Evercore ISI , led by Julian Emanuel.
Evercore's IT hardware and networking analyst Amit Daryanani has Apple at 'outperform' with a share price target of $290, citing the approaching earnings report as the main catalyst.
The shares have been doing well of late, sitting just shy of a record highs, and having gained 18.7% in just the last three months, amid signs of stronger-than-expected demand for the new iPhone 17.
"Daryanani's bias is driven by iPhone data points that suggest this may be more than the average iPhone refresh cycle, as lead times for the base iPhone 17 are above last year's October levels," says Evercore.
The analyst's survey work points to a strong demand environment, with a higher-than-average number of respondents indicating that they plan to purchase a new iPhone this year. "Stronger iPhone demand and a clearer line of sight to double-digit services growth present an attractive setup into the print [the earnings report]," says Evercore.
And Emanuel and colleagues suggest a specific option trade to ride this likely upside for Apple stock in coming weeks. Apple shares tend to do well in the last three months of the year as investors assume festive purchases of the company's products, they reckon.
"To position for both the catalyst of the 10/30 earnings print and the positive seasonality that is likely to continue into November and beyond, buy the Apple Dec. 260 calls for $8.35, vs. Apple's Friday close of $252.29," they say.
That would give the option buyer a right to purchase Apple stock at $260 up to expiry in December. Evercore notes that the implied volatility cost of the call option is 26%, which is attractively priced relative to realized volatility, that which occurred in the past.
In order for this option strategy to be profitable, Apple must trade above $268.35, which takes into account the call strike price of $260 and the call premium of $8.35. At close on Friday Apple shares were $252.29. However, if Apple stock falls below the $260 call strike, the option is out of the money - not profitable to exercise - and the premium paid is at risk, Evercore stresses.