The S&P 500 and Nasdaq 100 edged up 0.26% and 0.15%, respectively, last week.
Major market movers included Microsoft $Microsoft(MSFT)$ (-2.79%), Tesla $Tesla Motors(TSLA)$ (-3.99%), P&G (-2.69%), Nike $Nike(NKE)$ (-8.04%), Nvidia $NVIDIA Corp(NVDA)$ (+2.9%), Meta (+5.04%), Exxon (+7.78%), ConocoPhillips (+9.38%), and Salesforce (+4.02%).
Key economic events this week include the FOMC minutes and CPI (Thursday), and PPI (Friday).
Important earnings reports this week feature Pepsi on Tuesday, Delta on Thursday, and JPMorgan, Wells Fargo, and BlackRock on Friday.
Things You Should Know Before Starting Your Week
1) China’s Stock Boom Likely Shifted Fund Flows from Global Equity Markets
The Hang Seng Index has surged 24.61% as of last Friday, following China's widely celebrated stimulus announcement on September 24.
This strong rally may have diverted funds from global portfolios to Chinese stocks. US stocks could lose momentum as fund managers, who were previously underweight in China, are still scrambling to catch up with the China rally.
Investors now speculate that the rally could continue through the end of 2024, as there may be more stimulus on the horizon. Jia Kang, a leading Chinese economist, stated that China has room to launch a stimulus package of at least 10 trillion yuan (US$1.42 trillion) over the next year or two to boost its economy.
The next imminent stimulus may be launched after the US presidential election on November 5, especially if the stimulus goal is to prevent external shocks.
2) S&P 500 May Take a Breather in October
The S&P 500 has gained 22% through the first three quarters of this year.
Historically, the S&P 500 tends to return an additional 4% in Q4 after posting gains of more than 20% from Q1 to Q3.
Seasonality data also suggests that stocks typically decline between October 7 and October 27, with a rally beginning around October 28.
If history is any guide, investors could see a pullback in October, followed by a potential rally through the end of the year.
Source: Bloomberg, Tiger Brokers
3) Nvidia’s AI Summit, Tesla’s Robotaxi, and AMD Advancing AI events on Thursday may lift AI-related stocks
Nvidia’s AI Summit (Oct 7-9), Tesla’s Robotaxi Day (Oct 10), and AMD’s Advancing AI event (Oct 10) are set to showcase AI advancements, which could drive AI-related stocks higher.
Communication, Technology, and Consumer Discretionary sector ETFs may also see gains this week.
However, Nvidia, Tesla, and AMD have all rallied more than 18% since Sept 6, so we wouldn’t be surprised if profit-taking occurs following these events.
4) Strong Job Reports Fail to Dampen Rate Cut Expectations
U.S. September non-farm payrolls rose by 254k, surpassing the 150k consensus.
The unemployment rate dropped to 4.1% in September, compared to the 4.2% forecast.
Good news is good news?: Despite the stronger-than-expected job data, it did not diminish market expectations for a 50bp rate cut at the November FOMC meeting. Investors cheered on Friday, as they viewed the robust jobs report as a sign of the U.S. economy’s resilience, while still anticipating a 50bp rate cut in November.
Source: CME Fedwatch, 7 Oct 2024
Conclusion:
U.S. stocks consolidated last week. The equity market initially fell after Iran's missile attack on Israel but managed to recover on strong labor market data, ending the week with modest gains.
Despite Powell's comments that the Fed is not in a hurry to cut rates, the Iran conflict, and stronger-than-expected labor data, which should have weighed on stocks, the market held firm.
This week, inflation data and several AI events from big tech companies may provide positive surprises.
However, I remain skeptical of an October rally and expect a potential correction lasting until the end of the month for U.S. stocks.
Factors such as the Middle East conflict possibly reigniting inflation, U.S. election uncertainties, high valuations, potential negative earnings surprises, and poor October seasonality could still weigh on U.S. stocks throughout October.
I still favor the "Magnificent Seven" stocks amidst volatility. The Mag 7 represents both a flight to safety and a flight to growth for investors.
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