Big Tech earnings will consume investor attention in the week ahead.
Microsoft (MSFT), Alphabet (GOOGL), Meta (META), and Amazon (AMZN) are slated to report while Coca-Cola (KO) and Exxon (XOM) will also highlight a busy week for corporate reports.
On the economic front, investors will closely watch Thursday’s release of the first estimate of third quarter GDP, which is expected to show the US economy grew at an annualized rate of 4.3%. Friday will provide another look at the Fed’s preferred inflation gauge.
The Big Tech reports come at a critical time for markets as 16-year highs on Treasury yields and uncertainty around when the Fed will reach the peak of its interest rate hike cycle have weighed on stocks over the past month.
Last week, the Nasdaq (^IXIC) fell more than 3% while the benchmark S&P 500 (^GSPC) dropped more than 2% and the Dow Jones Industrial Average (^DJI) slipped more than 1.6%.
The Federal Reserve enters its blackout period this week ahead of its next meeting, which begins on Oct. 31. The central bank leaves the public eye with markets pricing in more than a 96% chance that the Fed doesn’t hike interest rates at the meeting.
Speaking at the Economic Club of New York on Thursday, Powell provided an update on the current state of the economy. He still sees inflation that’s “too high” and could be threatened by the “very resilient economy.”
Economists believed the speech likely closed the door on a November rate hike but kept options open for future meetings.
“The recent string of positive economic surprises will keep the Federal Reserve on high inflation alert, and although it won’t tilt the Federal Open Market Committee toward another rate hike at the November meeting, the December meeting will very much remain a ‘live’ one,” EY chief economist Greg Daco wrote in a research note on Friday.
The week ahead will provide a look at metrics closely watched by the Fed: economic growth and inflation. Thursday’s GDP release is expected to present the high-water mark for economic growth in 2023 after a string of resilient data has pushed out recession calls to 2024.
Data on Friday is predicted to show “core” PCE — which strips out the costs of food and energy — rose 3.7% over the prior year in September, down from 3.9% in August. The Fed targets 2% inflation, on average. Over the prior month, “core” PCE is expected to rise 0.3% in September.
The balance of those two prints will continue to be closely tracked over the next several months. Bank of America US economist Michael Gapen explained how he understood the central bank’s recent commentary on the two metrics in a weekly research note on Friday.
“Either growth will slow or inflation will start to move back up,” Gapen wrote. “If growth slows, the Fed might not need to hike again. But if inflation picks up, further hikes would be warranted.”
On the corporate side of the schedule, four of the “Magnificent Seven” stocks that have largely driven the 2023 stock market rally will provide quarterly updates, setting the stage for stock moves that could influence the major three indexes.
In an Oct. 12 note, a Bank of America investment strategist noted that without the Magnificent Seven, the S&P 500 would be just below 3,900, or roughly 10% lower.
On a company level, all four of the big tech companies will provide insights into consumer spending, artificial intelligence updates, and the advertising industry. Revenue numbers for cloud segments will remain in focus at Microsoft and Amazon, too.
The AI story is expected to be company-dependent. UBS’s team of analysts wrote that Meta, which benefited from an AI bump last quarter, could still have more room to run off the promise the technology offers.
“We like META, and despite elevated expectations into 4Q, we think the GenAI consumer app bull case is still under-appreciated and not priced into shares,” UBS analyst Lloyd Walmsley wrote in a research note on Oct. 16.
Meanwhile Walmsley’s colleague, Karl Keirstead, doesn’t see meaningful AI contributions for Microsoft this quarter.
“While the key AI lifts aren’t landing in the 1Q/Sept quarter, the stock set-up is now cleaner with more modest growth expectations into the print,” Keirstead wrote in a Microsoft preview note.
Broadly, the stock market story has been less about earnings and more about higher yields and what they could mean for the Fed.
Bond yields have soared since the last time the Fed met in late September. Yields on both the 10-year and 30-year Treasurys are at 16-year highs, and some Fed officials have remarked that the financial tightening brought on by an increase in yields could effectively take the place of another Federal Reserve interest rate hike.
“We have to let this play out and watch it,” Powell said at the Economic Club of New York on Thursday. “But for now it’s clearly a tightening in financial conditions and so we’ll be watching it carefully.”
A more exact answer from the Fed chair in two weeks could be the key to freeing stocks from their bond-beholden misery.
“It’s all about the Fed,” Invesco chief markets strategist Kristina Hooper told Yahoo Finance Live on Friday. “Once we get clarity from the Fed that the rate hike cycle is over, and we have more of a sense of the rate cuts coming in 2024, that to me will mark a very significant shift for markets where investors can become more risk on, where we’re likely to see yields start to fall.”
Weekly Calendar
Monday
Economic data: Chicago Fed Nat Activity Index, September (-0.01 expected, -0.16 prior)
Earnings: Philips (PHG), Cleveland Cliffs (CLF), Logitech (LOGI)
Tuesday
Economic data: S&P Global US manufacturing PMI, October, preliminary (49.5 expected, 49.8 previously); S&P Global US services PMI, October, preliminary (49.9 expected, 50.1 previously); S&P Global US composite PMI, October, preliminary (50 expected, 50.2 previously); Richmond Fed Manufacturing Index, October (5 prior)
Earnings: Alphabet (GOOGL), Coca-Cola (KO), Microsoft (MSFT), General Electric (GE), General Motors (GM), Raytheon Technologies (RTX), Snap (SNAP), Spotify (SPOT), Teladoc (TDOC), Texas Instruments (TXN), Verizon (VZ), Visa (V), 3M Company (MMM)
Wednesday
Economic data: New home sales, September (684,000 expected, 675,000 previously); New home sales, month-over-month, September (1.3% expected, -8.7% previously); MBA Mortgage Applications, week ending Oct. 20 (-6.9% prior)
Earnings: Meta Platforms (META), ADP (ADP), Boeing (BA), eBay (EBAY), General Dynamics (GD) Hilton (HLT), IBM (IBM), Mattel (MAT), O’Reilly Auto Parts (ORLY), ServiceNow (NOW) T-Mobile (TMUS)
Thursday
Economic data: Third quarter GDP, first estimate (+4.3% annualized rate expected, +2.1% previously); Third quarter personal consumption, first estimate (+3.9% expected, +0.8% previously); Initial jobless claims, week ended Oct. 21 (210,000 expected, 198,000 previously); Pending home sales, month-over-month, September (-1.0% expected, -7.1% previously); Durable goods orders, September preliminary (1.5% expected, 0.1% previously)
Earnings: Amazon (AMZN), Capital One (COF), Chipotle (CMG), Ford (F), Intel (INTC), Hershey (HSY), Honeywell (HON), Valero (VLO), Mastercard (MA), Merck (MRK), Roku (ROKU), Royal Caribbean (RCL), Skechers (SKX) Southwest (LUV), UPS (UPS), Valero (VLO), United States Steel (X)
Friday
Economic data: Personal income, month-over-month, September (+0.4% expected, +0.4% previously); Personal spending, month-over-month, September (+0.5% expected, +0.4% previously); PCE inflation, month-over-month, September (+0.3% expected, +0.4% previously); PCE inflation, year-over-year, September (+3.4% expected, +3.5% previously); “Core” PCE, month-over-month, September (+0.3% expected, +0.1% previously); “Core” PCE, year-over-year, September (+3.7% expected; +3.9% previously); University of Michigan consumer sentiment, October, final reading (63 previously)
Earnings: Exxon Mobil (XOM), Chevron (CVX), Charter Communications (CHTR), Colgate (CL), Newell Brands (NWL), Phillips 66 (PSX)
Josh Schafer is a reporter for Yahoo Finance.
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