Wall Street Awaits Key Inflation Data
U.S. stock futures are trading in negative territory to start the second week of October. This month generally remains volatile. The yield on the benchmark 10-year U.S. Treasury Note bounced back to above 4% this morning, its highest level since August.
Last week, the solid jobs data for September was the primary reason for the northward journey of this yield, which is a crucial indicator for mortgage and car loans. This is a significant jump for the 10-Year yield of 3.58% prevailing just a little more than a month.
This week, market participants will focus on the consumer price index and the producer price index data for September and the third-quarter 2024 earnings results of major banks, which will kickstart this earnings season. Our current projection shows that total Q3 earnings for the S&P 500 index are expected to be up 3.3% from the same period last year on 4.5% higher revenues.
Moving Toward a Safe Landing
On the other hand, inflation is gradually dwindling and approaching the Fed’s 2% target level. Moreover, an unexpectedly strong nonfarm payroll data for September, a decreasing unemployment rate and a firm average wage rate reduced concerns of a near-term slowdown in the U.S. economy.
On Oct 1, the Atlanta Fed GDPNow tracker showed the U.S. economy growing at a solid 2.5% in the third quarter after rising 1.4% and 3% in the first two quarters of 2024. This evaporates fears of an imminent recession.
A scenario of a falling inflation rate coupled with strong fundamentals of the U.S. economy is likely to enable the Fed to ensure a safe landing. The Fed is expected to reduce interest rates gradually rather than any aggressive cut.
The CME FedWatch tool currently shows an 87% probability that the central bank will reduce the benchmark lending rate by 25 basis points in November. Similarly, there exists an 86% chance that the Fed will cut the Fed fund rate by another 25 basis points in December.
Q3 Earnings in Focus
Major banks like JPMorgan Chase & Co. JPM and Wells Fargo & Co. WFC will report quarterly results this week. As of Oct 4, 21 S&P 500 companies reported third-quarter results. Total earnings for these 21 companies were up 20.3% from the same period last year on 2.7% higher revenues, with 71.4% beating EPS estimates and 71.4% beating revenue estimates.
Meanwhile, the largest investment bank. The Goldman Sachs Group Inc. GS raised its 2024 year-end target for the S&P 500 index to 6,000 from 5,600 estimated earlier. This implies a 4.32% upside for the broad-market index from its current level. The firm also raised the 2025 target for Wall Street’s benchmark to 6,300 from 6,000 reported earlier.
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