Live Markets-Earnings could keep stocks on track despite risks

With second-quarter earnings season largely in the rearview mirror, investors may soon have to look beyond corporate results for market direction.

Still, Brian Belski, CEO and chief investment strategist at Humilis Investment Strategies, says the reporting season was broadly encouraging, with 87% of S&P 500 companies .SPX delivering positive earnings surprises.

Attention is now likely to shift toward economic data and the Federal Reserve. In his latest Brief published Tuesday, Belski warned that markets could face bouts of volatility as investors react to incoming inflation data and the Fed's next policy decision.

"As we saw following the latest employment report, one strong or weaker data point can quickly change expectations for interest rates and cause an outsized market reaction," he wrote.

Even so, Belski argues that earnings remain the market's most important long-term driver, and that the backdrop continues to improve. Third-quarter earnings growth is now projected at 28.5%, up from 26.6% at the start of the quarter, while full-year growth is expected to reach 31.5%.

He acknowledges that markets rarely move in a straight line and says some turbulence after a strong summer rally would not be surprising. In fact, a pullback tied to shifting rate expectations or short-term macro concerns could ultimately "prove healthy."

The bottom line, according to Belski, is that investors should not let near-term volatility derail a constructive outlook.

"As long as earnings continue their trend, we would view meaningful weakness as an opportunity rather than a reason to become more negative," he wrote.