Earnings season kicks off !

October 15th, 2024

RECAPPING LAST WEEK

U.S. equities started the week on the backfoot as Chinese indexes slumped after no additional stimulus details came from officials—but the broader indexes quietly rallied from Tuesday on, bringing the S&P500 to new all-time highs for the 44th and 45th time this year. The S&P500, Nasdaq Composite, and the Russell 2000 indices all rose 1% for the week. S&P500 sector returns were mixed with technology once again leading the way. Financials were the second strongest
performer with their entire weekly gain coming in Friday after earnings from J.P. Morgan (JPM) and Wells Fargo (WFC) beat expectations. JPM did stoke some concern though as they increased credit loss provisions to $3.1 billion, up 125% YoY, but that was more than covered by investment banking gains.

Monday’s consumer credit report showed an increase of $8.9 billion in outstanding debt, which is significantly less than July’s $26.6 billion increase and the $12 billion expectation. Utilities were the laggards, dropping 2.5% as the rate sensitive sector digested yet another week of higher yields. Last week’s 10- and 30-year bond auctions saw modest demand, yet the average rates increased by 42 and 37 basis points versus a month prior. Energy closed last week unchanged as tensions remained elevated in the Middle East, but slowing Chinese demand and increased U.S. production have kept oil prices stable—at least for now. That production helped narrow the trade deficit, which came in 10.8% lower than July, the lowest mark in five months. Consumer sentiment dropped to 68.9 from 70.1 in September, but the NFIB Small Business Sentiment Index rose 0.3% to 91.5, although still well below the average score of 98 with inflation their largest concern.

In spite of that, inflation dropped to its lowest point in three years as YoY consumer prices rose just 2.4% and 0.2% MoM, both 0.1% above forecast. However, core prices were higher as the YoY and MoM rose 3.3% and 0.3%, respectively. From the wholesale side, Friday’s PPI report showed a 1.8% YoY increase and a flat September. Inflation is coming down, but overall, it is still above the Fed’s 2% target. Consumers are still expecting 2.9% 1-year inflation and 3% 5-year inflation, not giving the
Fed much confidence in its target. The labor market will have its effect there as well, and unemployment claims rose to 258K gaining 33K from the week before.

Hurricane Helene’s destruction from September led to higher unemployment claims in Florida and North Carolina, and matters are likely to deteriorate further as Hurricane Milton crashed through last week. Across the pond, Eurozone retail sales rose 0.2% MoM and 0.8% YoY, and investor confidence rose for the first time in months. UK GDP grew 0.2% in August, but Germany, Europe’s largest economy, revised down its 2024 GDP forecast to -0.2%. If that occurs, it will be only the second instance of consecutive years of contracting GDP since West and East Germany were unified in 1990.

THE WEEK AHEAD

Earnings season kicks off in force this week, especially in financials. JPM and WFC set the tone last week, but we’ll see if the rest can follow suit over the next few days. Most of the week’s economic data will come out Thursday with a slew of economic reports from both the U.S. and China being released.

With eyes on the Fed in the U.S. about interest rates and eyes on China’s government about potentially massive stimulus, Thursday’s data dump will be critically important. In the U.S., retail sales, the Philly Fed Manufacturing Index and industrial production, weekly unemployment claims, and finally the NAHB Housing index offer plenty for investors to digest. The hurricanes are likely to have a noisy, negative effect on October data, which increases the likelihood that even if September data is stronger, the Fed will continue easing in November and December. In China, we’ll see GDP figures along with industrial production, retail sales, and 1- and 5-year loan rates. Throw in a monetary policy statement from the European Central Bank that morning, and we could see some fireworks in the markets. Hopefully the dust settles by Friday as only UK Retail Sales and U.S. housing starts and permits are being released

(Source: Schwab)

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