Warning Signs Flashing: SPY May Plunge After Earnings Season

After the recent rollercoaster in equities and crypto, markets are entering a critical period: earnings season. While the initial rebound after last Friday’s selloff has restored some optimism, the broader picture suggests potential downside for SPY in the weeks ahead.

Earnings Season: A Stress Test for Stocks
The third-quarter earnings season kicks off with major banks and tech companies reporting this week. Expectations are high: analysts project around 8% EPS growth for S&P 500 constituents.

However, several factors indicate that this season could reveal underlying weaknesses:
High expectations and valuation pressure – Companies that fail to meet earnings or guidance could see outsized declines, creating ripple effects across the index.

Sectoral stress – Technology, finance, and industrials are exposed to higher input costs, slowing consumer demand, and margin compression. Misses in these sectors often drive SPY lower more than average.

Macro headwinds – High interest rates, slowing GDP growth, and trade tensions with China could exacerbate negative reactions.

Historically, SPY tends to be vulnerable after earnings seasons that reveal cracks in corporate performance, especially when macro uncertainty is elevated.

Geopolitical and Macroeconomic Pressures
Trade tensions: The U.S.-China conflict over rare earth metals and tariffs adds uncertainty to corporate supply chains. Even if earnings beat expectations, investor sentiment can remain fragile.

Recession risk: Economists from J.P. Morgan and S&P Global highlight a 30–40% chance of a U.S. recession by year-end 2025. Weak economic indicators can amplify post-earnings selloffs.

Volatility spikes: The VIX has started creeping higher after last week’s recovery, signaling that investors are hedging against downside risks. Historically, spikes in VIX correlate with short-term SPY declines.

Conclusion: Post-Earnings Risk for SPY
Traders and investors should watch for:
Missed earnings or cautious guidance from major banks and tech companies.
Rising VIX and fear-driven flows into protective options.
Breaks of critical technical support levels in SPY.

In this environment, positioning for a modest correction or increased volatility in SPY could be prudent until the earnings season clears and market sentiment stabilizes.