The stock market is looking to keep last week’s turnaround effort going and it will have a lot to look at this week to determine where it wants to go.
It will do so without hearing anything from Fed officials. They are in their blackout period ahead of the November 1-2 FOMC meeting. An assertion by The Wall Street Journal reporter Nick Timiraos that the Fed will debate how to communicate a smaller rate-hike step in December, after a 75-basis point rate hike in November, was the primary catalyst for Friday’s rally effort.
Treasury yields came off the boil following that report. The 10-yr note yield, which had been pushing 4.32%, settled Friday’s session at 4.21%. It is simmering at 4.19% this morning.
As an aside, the 10-yr UK gilt yield is down 22 basis points to 3.84% amid reports that Rishi Sunak is the frontrunner to replace Liz Truss as prime minister and that Finance Minister Hunt will soon announce a tax increase for high earners that could raise GBP20 billion.
The improvement there, along with the improvement in natural gas prices ($4.89, -0.07, -1.3%), has cleared the way for European equity markets to start the week on an upbeat note.
The same cannot be said for Chinese markets. The Shanghai Composite dropped 2.0% while Hong Kong’s Hang Seng plunged 6.4%. The weakness there came in the wake of the news that Xi Jinping had secured an unprecedented, third five-year term as China’s leader. Worries that he will pursue tighter regulations and the persistence of the zero-Covid policy undercut investor sentiment along with some weaker-than-expected retail sales data for September.
Many Chinese stocks with U.S. listings, such as JD.com (JD), Pinduoduo (PDD), and Baidu (BIDU), are showing double-digit percentage losses in pre-market action.
Their weakness has not undermined sentiment, however. If anything, it might be helping sentiment to the extent that worries about a less market-friendly regime in China could encourage safe-haven flows to the U.S. The yuan hit its lowest level against the dollar today since 2008.
Currently, the S&P 500 futures are up 28 points and are trading 0.8% above fair value, the Nasdaq 100 futures are up 44 points and are trading 0.4% above fair value, and the Dow Jones Industrial Average futures are up 251 points and are trading 0.8% above fair value.
Investor sentiment will be on trial this week. Roughly one-third of the S&P 500 will be reporting its September quarter earnings results. We will be hearing from companies across a wide swath of industries, and sectors, but none will hold more sway as potential market movers than Apple (AAPL), Microsoft (MSFT), Amazon.com (AMZN), Alphabet (GOOG), and Meta Platforms (META).
Beyond the earnings news, there will also be some featured economic reports this week, starting with the October Consumer Confidence Index on Tuesday, the September New Home Sales Report on Wednesday, the Advance Q3 GDP Report on Thursday, and the September Personal Income and Spending Report on Friday, which will feature the Fed’s preferred inflation gauge in the form of the PCE Price Index.
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Originally Posted October 24, 2022 – A big week ahead for earnings and economic news
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