What will drive the market’s next move: Earnings or rates

Stocks opened lower on Monday morning, with earnings season in full swing and an upcoming Federal Reserve meeting on Wednesday, leading investors to wonder whether earnings or rates will determine the market's next move.

Nick Colas, chief market strategist at Convergex, believes that while both earnings and interest rates play a part in moving the market, current trends show that this earnings season will be the key factor in seeing where stocks will head.

"The nature of this breakout in the S&P tells me that it's as much or more about earnings," he said Friday on CNBC's "Trading Nation." "We've had five straight down quarters of earnings, and Q3 is supposed to be the breakout quarter back to the upside with further growth in Q4 and into next year."

"So it all lines up to tell me that earnings growth is actually the more important factor and we need to see that come through in Q3," Colas added.

Colas' prediction comes as Q2 earnings enter their biggest week yet, with many big names set to report. This includes tech giant Apple, who missed on earnings and revenues last quarter, sending the stock on an 8 percent plunge from which the company had to recover.

However, Colas also believes that this earnings season is off to a good start, which could bode well for markets.

So far, the vast majority of the sectors on the S&P 500 have either met or beaten their predicted sector earnings estimate this quarter. Even struggling sectors like the financials have held up, as a slew of big-name banks beat earnings to give a bit of breathing room in an otherwise dour year for the sector.

But as important as earnings could be in driving the market, iiTrader chief market strategist Bill Baruch is looking at Japan this week to determine what could happen to stocks in the U.S.

"If the Bank of Japan steps up and [implements] their new unprecedented stimulus measures, then yields will continue to move lower, and that will keep stocks up," he said. "So we're really looking at that as being a key component that's going to be there with earnings."

In addition to the Bank of Japan, Baruch believes that Tuesday's Federal Reserve meeting could also move the market. The Fed has so far stopped short of its resolve to raise interest rates this year, and many investors don't believe that a rate hike will be coming soon.


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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