Upcoming Economic Reports and Earnings Season Insights

Market Gains Amid Positive Jobs Report

The stock market experienced an uptick recently, largely fueled by a favorable jobs report that instilled confidence among investors regarding economic resilience. The S&P 500 index rose by 0.9%, closing at 5,751.07, while the Nasdaq Composite surged by 1.22% to reach 18,137.85. The Dow Jones Industrial Average also joined the rally, climbing 341.16 points, which marked a significant new record at 42,352.75.

The positive momentum followed a stronger-than-anticipated jobs report, with nonfarm payrolls increasing by 254,000 in September. This figure outpaced economists' predictions, which had anticipated an addition of 150,000 jobs. Furthermore, the unemployment rate surprisingly dropped to 4.1%, contrary to forecasts that suggested it would remain at 4.2%.

When assessing the week's overall performance, the S&P 500 recorded a rise of 0.22%, while the Dow advanced slightly by 0.09%, and the Nasdaq managed to post a 0.1% gain, rebounding sharply after a troubling start to Friday where it was down over 1%.

Focus on Upcoming Economic Indicators

As we look ahead, attention will pivot to the forthcoming Consumer Price Index (CPI) report expected on Thursday, followed by the Producer Price Index (PPI) report on Friday. These reports are anticipated to hold significance amid the evolving landscape of the labor market.

Research strategists at Deutsche Bank indicate that these upcoming reports will play a crucial role in reinforcing the Federal Reserve's belief that inflation is moving toward its target. For CPI, a stable headline figure of a +0.05% increase is projected, a modest decline from the previous +0.19%. Meanwhile, core inflation is anticipated to cool slightly to +0.24%, down from +0.28% from the previous month.

Should these expectations materialize, it would bring the year-over-year growth rate of headline CPI down by 30 basis points to 2.3%, with core inflation expected to decrease by a tenth to 3.2%.

Furthermore, the trend in core inflation indicators is projected to improve, as the six-month annualized rate is expected to decline from 2.7% to 2.4%.

In addition to CPI and PPI, this week will also cover updates on consumer sentiment, small-business optimism, and minutes from the recent Federal Open Market Committee (FOMC) meeting.

Insights into the Q3 Earnings Season

This week marks the commencement of the Q3 2024 earnings season. Major banking institutions, including BlackRock (NYSE: BLK), JPMorgan Chase (NYSE: JPM), and Wells Fargo & Company (NYSE: WFC), are slated to start reporting their results come Friday. Ahead of these reports, investors are keenly eyeing earnings announcements from PepsiCo (NASDAQ: PEP) on Tuesday and Delta Airlines (NYSE: DAL) on Thursday.

Analysts at Evercore ISI suggest that S&P 500 earnings per share (EPS) growth may experience a slowdown following robust growth in Q2. They predict a year-over-year growth for Q3 EPS at 6.5%, which includes a modest 2.5% “EPS surprise,” potentially representing one of the weakest surprise results seen in recent quarters.

Despite the anticipated EPS slowdown, overarching factors such as U.S. elections, stimulus from China, and geopolitical tensions in the Middle East are likely to take precedence over quarterly performance metrics during this earnings season, according to Evercore.

Instability during the October elections has historically led to heightened market volatility, and analysts note that the S&P 500 has faced declines in the past four Presidential Election Octobers, despite typically positive returns in the subsequent months of November and December.

Expert Analysis on Market Dynamics

In light of the upcoming earnings season, various analysts have shared their perspectives. Bank of America emphasized that this season provides an excellent backdrop for stock pickers, noting that the derivatives market predicts significant post-earnings volatility at the single-stock level, the largest seen since 2021.

Goldman Sachs has raised its projections for S&P 500 EPS for 2025, now forecasting a jump to $268, reflecting an 11% increase year-over-year. They have also set their index targets at 6000 for year-end 2024, indicating a potential 4% upside.

On the other hand, Morgan Stanley’s view following the positive jobs data sees them upgrading cyclical stocks to an overweight position, diversifying their outlook across various sectors.

BTIG noted the current positive economic data yet maintains a cautious stance, suggesting that without a significant breach below key support levels, aggressive bearish moves remain a distant concern.

Frequently Asked Questions

What is the significance of the upcoming CPI and PPI reports?

The CPI and PPI reports are crucial in assessing inflation, which influences the Federal Reserve's decisions on interest rates and economic policies.

When does the Q3 earnings season officially begin?

The Q3 earnings season kicks off this week, with major financial institutions beginning to release their reports.

What factors could affect the S&P 500’s performance in the coming months?

Potential factors include political uncertainty from upcoming elections, global economic conditions, and inflation trends.

How might October's political climate impact the stock market?

Historically, October has seen market volatility during election years due to heightened uncertainty, influencing investor behavior significantly.

What do analysts expect for S&P 500 EPS growth this quarter?

Analysts predict a slowdown in Q3 EPS growth to 6.5%, a change from the rapid growth seen in previous quarters.

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