US Stocks Surge/Crash as Earnings Kick Off ?
Last week was an “interesting” way to kickstart Q4 2024 and the first week of October.
3 main events influenced and presided over the US market:
Tue, 01 Oct 2024. Iran missiles attack. Status - “opened”.
Tue, 01 Oct 2024. US Port strike. Status - “pend until 15 Jan 2024”.
Fri, 04 Oct 2024. US Non-farm payroll report. Status - “completed”.
Coupled with the 4 jobs related reports released between Tue, 01 Oct to Fri, 04 Oct, the US market edged marginally higher by the end of the week. (see below)
Despite a (a) fluctuating rate cut bets, (b) geopolitical tensions, and (3) supply chain concerns:
DJIA: +0.15% (+63.0 to 42,352.75).
S&P 500: +0.43% (+24.55 to 5,715.07).
Nasdaq: +0.38% (+68.02 to 18,137.85).
As we head into a new week, I will be curious if residual effect from last week’s event will continue to exert its influence.
(1) US Non Farm Payroll.
On Fri, 04 Oct 2024 - US non-farm payroll jobs report was released.
The job gains increased by the most since March 2024, coming in at 254,000 jobs in September 2024.
Economists polled by Reuters had forecast payrolls would rise by 140,000 positions after advancing by a previously reported 142,000 in August.
Incidentally, August 2024 jobs gains numbers was also revised to 159,000 from a lower 142,000.
In addition, unemployment rate fell to 4.1% (from August 4.2%), indicating a resilient US economy that likely does not require another jumbo interest cut from the Fed, for the rest of 2024.
The Labour Department issued report also highlighted:
Average hourly earnings rise +0.4%; up 4.0% YoY. (see above)
Average workweek slips to 34.2 hours from 34.3 hours.
This is really a strong set of data, that helped to turn the US market around - after being bogged down by
Tension in the Middle East missiles attack.
US port strike when existing International Longshoremen's Association (ILA) Master Contract expired. The contract governs (i) the working conditions and (ii) wages of dockworkers at ports along the East and Gulf Coasts of US.
(2) Middle East Tension remains.
If there is anything that will affect US market this week, it will be:
Simmering tension as to “when or if” Israel will initiate a counterstrike against Iran, in a tit-for-tat against last Tue, 01 Oct 2024 missiles attack.
My thots: I think this is the biggest de-stabilizing factor for US stocks and market.
The upcoming one year anniversary of Hamas “sudden” attack of Israel in Gaza. (see above)
(3) Earnings Season - starts.
This week officially kick off Q3 earnings reporting season.
Big banks are set to kick off what Wall Street expects to be a subdued quarter for YoY earnings growth.
Entering the reporting period, consensus projects earnings to grow 4.7%.
This marks the 5th straight quarter of growth:
Compared to the same period a year ago.
That would also be the slowest YoY growth since Q4 2023.
Below is a compilation of what Wall Street have to comment.
(a) Deutsche Bank (DB)$, Chief equity strategist, Binky Chadha:
Bottom-up consensus forecasts a sharp & broad slowing.
This should set up company earnings to surpass Wall Street's expectations as they often do.
However, he does not feel more bullish on how stocks might perform during the reporting season.
This earnings season will also take place against a backdrop that could see it (1) overshadowed by geopolitical developments and (2) noise around the US elections.
(b) Bank of America (BAC)$, US & Canada equity strategist, Ohsung Kwon:
Consensus is not expecting a strong Q3 2024.
Much of the focus will be on what companies say about the path forward.
With the easing cycle has started, what are companies going to say / present about any indications of improvement given the lower rate environment.
(c) Q3 2024 Reporting List.
Pepsico Inc (PEP)$ - Tue, 08 Oct - AM.
$JPMorgan Chase(JPM)$ - Fri, 11 Oct - AM.
$Wells Fargo(WFC)$ - Fri, 11 Oct - tbc.
BlackRock (BLK)$ - Fri, 11 Oct - AM.
(4) Consumer Price Index (CPI).
With the “stable” jobs situation firmly behind, focus will once again be on US inflation that is still a “work-in-progress” towards the Fed’s 2% target rate.
The consumer price index (CPI) report for September 2024 will land on Thu, 10 Oct 2024 morning, just before US market opens.
Tension in the Middle East and now (complains some analysts) of the “too strong’ jobs data, might be the stumbling block towards a gradual easing of US inflation.
(a) August CPI Recap.
Headline inflation.
CPI (MoM) was 0.2%, inline with forecast and unchanged from July’s CPI (MoM).
CPI (YoY) was 2.5%, inline with forecast and -0.4% lower than July’s CPI of 2.9%.
Core inflation.
Core CPI (MoM) was 0.3%. It was +0.1% higher than analysts’ estimates (0.2%) and July’s core inflation (0.2%). (see below)
Core CPI (YoY) was 3.2%. It’s same as analysts’ estimates and unchanged from July’s core inflation. (see above)
(b) September Estimates.
Headline inflation - forecast.
CPI (MoM) forecast 0.1% vs Augst CPI (MoM)’s 0.2%.
CPI (YoY) forecast 2.3%, vs August CPI (YoY)’s 2.5%.
Core inflation.
Core CPI (MoM) forecast 0.2% vs August Core CPI (MoM)’s 0.3%.
Core CPI (YoY) forecast 3.2% vs August Core CPI (YoY)’s 3.2% (status quo).
(5) Producer Price Index (PPI).
Another inflation report, the US Producer Price Index (PPI) report will also be out this week - Fri, 11 Oct 2024.
Although not as widely watched as the CPI report, it is nonetheless a crucial report because its data is used to derive the other consumer inflation report - Personal consumption expenditure (PCE).
(a) August 2024 Recap.
Producer Headline inflation:
PPI (MoM) : was 0.2%, marginally higher than forecast (0.1%) and +0.2% higher than July’s data.
PPI (YoY) : was 1.7%, lower than forecast (1.8%) and -0.4% lower than from July’s PPI (YoY).
Core Producer Price Index.
Core PPI (MoM): was 0.3%, marginally higher than forecast (0.2%) and definitely higher than July’s PPI (MoM) of -0.2%.
Core PPI (YoY): was 2.4%, lower than forecast of 2.5% and marginally higher than downwardly revised July Core PPI (YoY) of 2.3%.
(b) September Estimates.
Producer Headline inflation:
PPI (MoM) : forecast 0.1% vs August PPI (MoM)’s 0.2%.
PPI (YoY) : forecast 1.6% vs August PPI (YoY)’s 1.7%.
Core Producer Price Index.
Core PPI (MoM): forecast 0.2% vs August Core PPI (MoM)’s 0.3%.
Core PPI (YoY): forecast 2.7% vs August Core PPI (YoY)’s 2.4% - an uptick.
A “stubborn” inflation that refuses to budge.
Will it be fallacious to assume the interest cut announced on 18 Sep 2024 will have the desired ripple effect almost immediately ? I think it would.
US market will again turn “jittery”, just because it’s the week heading into inflation reporting.
Amidst a backdrop of an uncertain (when) and likely, retaliation by Israel against Iran’s 01 October invasion.
Where To Invest ?
Based on the principal of “consistent, regular investment regardless of market conditions”, investors are once again, faced with the perennial question of where to park their hard-earned monies ?
Stripped of emotions, decision could be base off jobs data because it indirectly shows where demand, hence hiring will be. (see above)
Using this criterion, the Top 3 sectors (for considerations) could be:
Healthcare. $UnitedHealth(UNH)$.
Leisure & Hospitality. $Carnival(CCL)$.
Constructions. $Real Estate Select Sector SPDR Fund(XLRE)$
Energy. Exxon Mobil Corp (XOM)$. should war heats up, oil prices will soar.
Know your risk appetite and what you could afford to lose to investment to come away unscathed - before investing. Due diligence, a definite must.
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