A turbulent five days for markets, featuring rising tensions in the Middle East and a port strike that both started and stopped, was capped off by a better-than-expected September jobs report that helped stocks close marginally up on the week.
For the first week of October the S&P 500 (^GSPC) rose 0.2%, while the Nasdaq Composite (^IXIC) and Dow Jones Industrial Average (^DJI) rose about 0.1%.
An update on inflation and the start of third quarter earnings reports will grab investor attention in the week ahead.
The October Consumer Price Index (CPI) report will headline an economic calendar that will also feature updates on consumer sentiment and the release of the minutes from the Federal Reserve's September meeting.
On the corporate side, some of America's largest financial institutions, including JPMorgan (JPM), Wells Fargo (WFC), and BlackRock (BLK), will kick off third quarter earnings season on Friday. PepsiCo (PEP) and Delta Air Lines (DAL) are also scheduled to report earlier in the week.
A small step forward
On Friday, the September jobs report cooled concerns that the labor market is rapidly deteriorating and will prompt another jumbo-sized rate cut.
Data from the Bureau of Labor Statistics released Friday showed the labor market added 254,000 payrolls in September, more additions than the 150,000 expected by economists. Revisions to both the July and August report showed the US economy added 72,000 more jobs during those two months than previously reported.
Meanwhile, the unemployment rate fell to 4.1% from 4.2% in August.
This, Wall Street economists and strategists argued, likely takes another half-percentage-point interest rate cut from the Fed in November off the table.
"We think that the rate descent should continue, but with today’s strong data it’s more likely that the Fed will move in 25 basis point (bps) cut increments," BlackRock chief investment officer of global fixed income Rick Rieder wrote in a research note on Friday. "For a Fed that is recalibrating to an economy that is operating at a very solid level, it seems more appropriate for the market to price in a small probability of “no cut” at the next meeting, rather than a small probability of a 50-bps cut."
Price check
While concerns about the Fed's maximum employment portion of its dual mandate appear to have eased for now, inflation remains above the central bank's 2% target.
The week ahead will provide a fresh update on how quickly price increases are falling toward that goal.
Wall Street economists expect headline inflation rose just 2.3% annually in September, a slowdown from the 2.5% rise seen in August. August data marked the slowest year-over-year inflation reading since early 2021. Prices are set to rise 0.1% on a month-over-month basis, a decrease from the 0.2% reading seen in May.
On a "core" basis, which strips out food and energy prices, CPI is forecast to have risen 3.2% over last year in September, unchanged from August. Monthly core price increases are expected to clock in at 0.2%, below the 0.3% seen in August.
"Inflation continues to move in the right direction, which will allow further cuts," Bank of America US economist Stephen Juneau wrote in a research note previewing the release. "However, we continue to think labor data matters more for size of cuts."
Tesla talk
Tesla will once again be one of the key individual stocks in focus during the upcoming week. The electric vehicle maker is expected to host its highly anticipated robotaxi event on Oct. 10.
Tesla is expected to provide further details on its plans for its full self-driving project. Morgan Stanley analyst Adam Jonas wrote in a note to clients he expects attendees will be shown and given rides in one of Tesla's "cybercabs.”
As Yahoo Finance's Laura Bratton reported, RBC analyst Tom Narayan told Yahoo Finance that while he has high hopes for a future of self-driving robotaxis, the event is unlikely to send Tesla stock soaring.
“I think it's difficult to get excited on a stock on something so high level,” he said, noting that the launch will showcase Tesla’s big-picture vision for AI and autonomous vehicles — a vision that he said will probably take several years to become “financially meaningful” for the EV maker.
Tesla stock fell about 5% last week ahead of the event as the company announced third quarter deliveries that fell short of Wall Street's estimates.
Enter earnings
Big banks are set to kick off what Wall Street expects to be a subdued quarter for year-over-year earnings growth. Entering the reporting period, consensus projects earnings to grow 4.7%. This would mark the fifth straight quarter of growth compared to the same period a year prior but would also be the slowest year-over-year growth since the fourth quarter of 2023.
"The bottom-up consensus forecasts a sharp and broad slowing," Deutsche Bank chief equity strategist Binky Chadha wrote in a note to clients.
Chadha added that this should set up company earnings to surpass Wall Street's expectations as they often do. It does not, however, make Chadha more bullish on how stocks might perform during the reporting period.
"Earnings seasons are typically positive for equities, but the strong rally and above-average positioning going in argue for a muted market reaction," Chadha wrote. "This earnings season will also take place against a backdrop that could see it overshadowed by geopolitical developments and noise around the US elections."
Bank of America US and Canada equity strategist Ohsung Kwon told Yahoo Finance that with consensus not expecting a strong third quarter, much of the focus will be on what companies say about the path forward.
"Now that the easing cycle has started, what are companies ... going to say about any early indications of improvement given the lower rate environment?" Kwon said.
Weekly calendar
Monday
Economic data: No notable releases.
Earnings: Duckhorn (NAPA)
Tuesday
Economic data:
Earnings: PepsiCo (PEP)
Wednesday
Economic data: MBA mortgage applications Oct. 4 (-1.3% prior), Wholesale inventories month-over-month, August final (0.2% prior); FOMC September meeting minutes
Earnings: Helene of Troy (HELE)
Thursday
Economic data: Consumer Price Index, month-over-month, September (+0.1% expected, +0.2% previously); CPI excluding food and energy, month-over-month, September (+0.2% expected, +0.3% previously); Consumer Price Index, year-over-year, September (+2.3% expected, +2.5% previously); CPI excluding food and energy, year-over-year, September (+3.2% expected, +3.2% previously); Real Average Hourly Earnings, year-over-year, September (+1.4% previously); Real Average Weekly Earnings, year-over-year, September (+0.9% previously); Initial jobless claims, week ended Oct. 5 (237,000 expected, 225,000 prior)
Earnings: Delta Air Lines (DAL), Domino's (DPZ), Tilray (TLRY)
Friday
Economic data: Producer Price Index, month-over-month, September (+0.1% expected, +0.2% previously); PPI, year-over-year, September (+1.6% expected, 1.7% previously); Core PPI, month-over-month, September (+0.2% expected, 0.3% previously); Core PPI, year-over-year, September (+2.7% expected, +2.4% previously); University of Michigan consumer sentiment, October preliminary (70.3 expected, 70.1 previously)
Earnings: BlackRock (BLK), BNY Mellon (BK), JPMorgan (JPM), Wells Fargo (WFC)
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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