Stocks rose on Friday after an upbeat September jobs report boosted investor confidence in the economy’s strength, with the S&P 500 climbing 0.9% to close at 5,751.07 and the Nasdaq Composite to increase by 1.22% to 18,137.85 units. The Dow Jones industrial average gained 341.16 points, or 0.81%, to hit a new record at 42,352.75.
The rally followed a stronger-than-expected jobs report as nonfarm payrolls rose 254,000 in September, beating economists’ expectations for 150,000. At the same time, the unemployment rate fell to 4.1%, contrary to forecasts that it would remain at 4.2%.
For the week, the S&P 500 ended up 0.22%, the Dow gained 0.09% and the Nasdaq posted a weekly gain of 0.1%, a sharp rebound after opening Friday down more than 1% for technologically heavy indicator.
As for this week, attention turns to the upcoming CPI on Thursday and the CPI on Friday.
With labor market risks easing, Deutsche Bank strategists said the two reports “will be somewhat important in maintaining the Fed’s confidence that inflation remains on track to return to target.”
For the CPI, they expect the headline index to remain flat, forecasting an increase of +0.05% versus the previous +0.19%. Core inflation is expected to be slightly cooler at +0.24% versus +0.28% last month.
“If our expectations meet the target, the annual growth rate of the headline CPI will decline by 30 basis points to 2.3%, while that of the core will decline by a tenth to 3.2%,” the strategists note.
Shorter-term trends in core inflation are also expected to improve, with the six-month annualized rate easing from 2.7% to 2.4%.
Other important updates for this week will include consumer sentiment, small business optimism and the minutes of the Federal Open Market Committee (FOMC) meeting.
The third quarter earnings period begins
Q3 2024 earnings season begins this week, with big banks like BlackRock ( NYSE:BLK ) , JPMorgan Chase ( NYSE:JPM ) and Wells Fargo & Company ( NYSE:WFC ) kicking off the reporting period on Friday . Before those reports, however, investors will first look at the financial results of PepsiCo ( NASDAQ:PEP ) on Tuesday and Delta Airlines ( NYSE:DAL ) on Thursday.
Strategists at Evercore ISI believe the S&P 500’s earnings per share (EPS) growth is likely to slow somewhat after the rapid growth seen in the second quarter.
They expect 3Q EPS to grow 6.5% YoY, including a modest 2.5% “EPS surprise,” which would be one of the weakest surprises in recent quarters.
“While EPS are expected to slow from the torrid pace of Q2, the US election, China’s stimulus and conflict in the Middle East continue to emphasize macro over micro in this earnings season,” notes Evercore.
The house expects increased volatility in October due to growing political uncertainty. He points out that the S&P 500 has declined in each of the last four October presidential elections, despite historically positive returns in November and December.
During election years, earnings periods tend to show muted reactions to sales and EPS results, with “double dips” standing out as significant underperformers.
What analysts are saying about US stocks
Bank of America: “This upcoming earnings season will be a great environment for stock pickers. The derivatives market is pricing in the largest post-earnings implied single-stock move in our data history since 2021. Interestingly, at the index level, implied volatility in the S&P 500 remains relatively low, suggesting that actual action will be more at the individual stock level. However, high implied moves do not preclude the value of options trading, as each of the last four quarters has actually seen average realized moves higher than implied moves at entry.”
Goldman Sachs: “Ahead of the 3Q2024 earnings period, we are raising our 2025 S&P 500 EPS forecast to $268 (+11% YoY) from $256 (+6%) and introducing an estimate of 2026 earnings per share at $288 (+7%)”.
“The current P/E multiple of 22x is consistent with our macro fair value model. We forecast the P/E to be unchanged at the end of 2024 and raise our index target to 6000 (from 5600) and our 12-month target to 6300 (from 6000), implying 4% and 10% upside, respectively.” .
Morgan Stanley: “Friday’s strong jobs data and our economists’ call for a series of 25 basis point rate cuts from now leads us to upgrade cyclicals to overinvested over defensives. At the sector level, we are making several changes to reflect this shift: we are upgrading financials to overinvested, downgrading healthcare to neutral and downgrading staples to underinvested. We maintain our overinvested position in Utilities as a defensive hedge with exposure to secular growth.”
BTIG: “After some volatility early in the month, bulls held the primary SPX breakout in the 5670-5700 zone. While we still see decent chances for a “Red October,” if the bears can’t break below 5670, it’s hard to be aggressively bearish. On the other hand, given last week’s strong eco data, the SPX is still unable to make a new high. We don’t see a runaway move to the top ahead of the election, so it seems to be running in place.”
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Reference;
Karaahmetovic, V. (2024) Dow Jones, Nasdaq, S&P 500 weekly preview: Attention turns to CPI, PPI reports By Investing.com, Investing.com. Investing.com. Available at: https://www.investing.com/news/stock-market-news/dow-jones-nasdaq-sp-500-weekly-preview-attention-turns-to-cpi-ppi-reports-3650711 (Accessed: 7 October 2024).
