A crucial inflation print and the start of third quarter earnings season are set to greet investors in the week ahead.
The economic highlight will come on Thursday morning, when the Consumer Price Index (CPI) for September will be released. The report is expected to show small a decrease in headline inflation.
Minutes from the Federal Reserve’s September meeting are also expected to provide further insight on the path forward for monetary policy and a reading of consumer sentiment will close out the week.
On the corporate side, Pepsi (PEP), Delta (DAL), and JPMorgan (JPM) will highlight the start of third quarter earnings season. Reports from Citi (C), Wells Fargo (WFC) and BlackRock (BLK) are also expected on Friday.
Monday is a bond market holiday, meaning there will be no bids on Treasury yields, which have been at the top of investor focus over the past week. However, the US stock market will still be open.
Stocks enter the week largely higher after a blowout September jobs report sent stocks roaring on Friday, negating a bond yield-driven selloff earlier in the week. The Nasdaq (^IXIC) climbed nearly 1.6% while the benchmark S&P 500 (^GSPC) rose almost 0.5%. Both rises marked the best week in the past five for the indexes. The Dow Jones Industrial Average (^DJI) fell 0.3%.
A hot September jobs report has further complicated the Fed’s next move.
The details of the report could have positives for the Fed. On a month-over-month basis, hourly wage growth came in cooler than the expected at 0.2% for the second-straight month. The yearly wage growth of 4.2% was the slowest annual pace since June 2021.
Broadly though, the 334,000 nonfarm payroll additions was unavoidably hot compared to what economists had expected. And that adds upside risks to further rate hikes, according to economists, as the hot job market needs to be met with cooling inflation in order to stay on pace for a coveted “soft landing.”
“While we’re sticking with our call for rates on hold, if today’s number is followed by hot inflation data the Fed may get pulled into another hike,” JPMorgan chief US economist Michael Feroli wrote in a note on Friday. “And if that happens the already-tenuous case for avoiding recession next year gets harder to make.”
The latest inflation print is expected on Thursday via the Consumer Price Index. Economists forecast prices rose 3.6% over the prior year in September, a decrease from headline inflation of 3.7% in August. Prices are set to rise 0.3% on a monthly basis, down from a 0.6% in August.
On a “core” basis, which strips out the volatile food and energy categories, CPI is expected to have risen 4.1% over last year in September, a slowdown from the 4.3% increase seen in August. Monthly core price increases are expected to clock in at 0.3%, equal from the. monthly increase seen in August.
“We think there is a greater risk of core CPI printing at 0.3% m/m than 0.1% m/m,” Bank of America US economist Stephen Juneau wrote in a note to clients on Friday. “Airfares and lodging could come in firmer than we expect, which would push up the m/m print to 0.3%, all else equal…Should the print come in as we expect or a above our expectations, it would keep a November hike in play.”
Bets on the Fed hiking interest rates at the November meeting increased after the September jobs reports release. As of Friday afternoon, markets were pricing in a 27% chance of a rate hike in November, up from 18% a week prior, per the CME FedWatch Tool.
Third quarter earnings season begins this week with specific focus on what some of the nation’s largest financial institutions have to say about the state of the consumer and the overall health of the US economy.
Wall Street is expecting the financials sector to report year-over-year earnings growth of 8.7%, the fourth-highest growth rate out of all 11 sectors, per Factset. Strategists believe bank stocks could provide key insight into how corporate America is dealing with the higher interest rate environment.
“[Bank stocks] need to participate in any recovery rally in order to validate the notion that higher interest rates do not doom the US economy to a recession next year. If you are very bullish here, this is the group for you,” DataTrek Research co-founder Nicholas Colas wrote in a note to clients on Wednesday.
Pepsi and Delta will also provide a look at consumer demand. Pepsi will be one of the first consumer brands to report since reports about weight loss drugs bringing down demand for snacks sank stocks in the sector last week.
Leading into Friday’s jobs report bond yields rose to 16-year highs. The rising yields unsettled investors already fearful of the impact of further rate hikes and sent stocks lower. But the bond induced sell-off might not have been all bad.
For one, it could keep the Fed on pause in November as some economists and Fed officials believe the rise in bonds might’ve already done the credit tightening work for the central bank.
“Were it not for the significant tightening in financial conditions (more than two 25bp hikes in fed funds equivalent), this report might support the additional hike foreseen in the Fed’s September projections,” Morgan Stanley chief US economist Ellen Zentner wrote in a note on Friday.
And while the tightening itself could still be a concern for investors it might’ve opened up markets for a new catalyst.
Evercore ISI’s Julian Emanuel says the past week’s “bondfire of the volatilities” provided a buying opportunity for stocks.
“As much focus as there is on Yields right now, earnings season begins in a week and the flip side of unanticipated 3Q economic strength is that 3Q earnings will likely surprise to the upside,” Emanuel wrote in a note on Friday. “Long term, earnings drive stocks.”
Economic data: No notable economic news.
Earnings: No notable companies set to report.
Economic data: NFIB Small Business Optimism, September (91.3 expected, 91.3 previously); Whole inventories month-over-month, August final (-0.1% expected, -0.1%. previously)
Earnings: Pepsi (PEP)
Economic data: Producer Price Index, month-over-month, September (+0.3% expected, +0.7% previously); PPI, year-over-year, September (+1.6% expected; +1.6% previously); Core PPI, month-over-month, September (+0.2% expected, +0.2% previously); Core PPI, year-over-year, September (+2.3% expected; +2.2% previously); FOMC meeting minutes
Earnings: No notable companies set to report.
Economic data: Consumer Price Index, month-over-month, September (+0.3% expected, +0.6% previously); Core CPI, month-over-month, September (+0.3% expected, +0.3% previously); CPI, year-over-year, September (+3.6% expected, +3.7% previously); Core CPI, year-over-year, September (+4.1% expected, +4.3% previously); Real average hourly earnings, year-over-year, September (+0.d5%previously) Initial jobless claims, week ending Oct. 7 (214,000 expected, 207,000. previously);
Earnings: Delta Air Lines (DAL), Domino’s (DPZ)
Economic data: Import prices, month-over-month, September (+0.6% expected, +0.5% previously); Export prices, month-over-month, September (+0.5% expected, +1.3% previously); University of Michigan consumer sentiment, October, preliminary (67.5 expected, 68.1 previously)
Earnings: JPMorgan (JPM), Citigroup (C), BlackRock (BLK), Wells Fargo (WFC), UnitedHealth (UNH), PNC (PNC), Progressive (PGR)
Josh Schafer is a reporter for Yahoo Finance.
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