The Week That Was, The Week Ahead: Macro & Markets, October 13, 2024

Everything to Know about Macro and Markets

Major stock indexes climbed for the fifth week in a row, pushing higher on the bull market’s two-year birthday. The S&P 500 (SPX) and the Dow Jones Industrial Average (DJIA) rose by 1.11% and 1.21% on the week, respectively, reaching new records. Meanwhile, the Nasdaq Composite (NDAQ) and the Nasdaq-100 (NDX) added 1.13% and 1.18%, ending the week less than 2% below their historic peaks.

The Bull Market Turns Two

The S&P 500 has gained 60% since its trough on October 12^th, 2022, propelled by the rise of AI euphoria and a surprisingly resilient U.S. economy. Although the rally has become much choppier this year, particularly in tech, it has also considerably broadened out, potentially providing more room for stocks to run higher. The bull run has also been supported by corporate profits, which have been far stronger than analysts had expected, reaching a new record in the previous quarter.

Historically, the average bull market has lasted between 3 to 4 years, suggesting that the rally has more time to run. The 60% gain is in line with the historical average of the first two-year periods for the past bull markets, although historically, gains tend to moderate in the third year. While statistics can be used as a reference, further bull-market progress will be determined by economic growth, interest rates, and corporate profits.

Soft Landing Outlook Persists

Economic data was in the spotlight throughout the choppy week, with the Fed member speeches and the release of the September Federal Open Market Committee (FOMC) meeting minutes also drawing a lot of investor attention. 

The week started on the wrong foot for stocks as the odds of another jumbo interest-rate cut faded following the previous week’s stronger-than-expected jobs data, which underscored the resilience of the U.S. economy. Although the economy’s strength boosted optimism for a soft-landing, it raised worries that the policymakers may slow or even pause their rate-easing pace. Thursday’s slightly hotter-than-expected CPI, which came along with a rise in jobless claims, added to investor confusion about the economy’s health, muddying the outlook for monetary policy.

Friday’s tepid producer-price inflation data, serving as a leading indicator for consumer inflation, rekindled optimism that the Federal Reserve is on the right path. In addition, the FOMC minutes revealed that most of the rate committee members supported the 0.5% rate reduction, agreeing that inflation risks have diminished while risks to the job market health have become elevated. Markets are now pricing in a 0.25% interest rate cut in November.   

Bank Profits Lift Sentiment

Fedspeak and economic data took a step back on Friday to let big banks showcase their quarterly numbers. The third-quarter earnings season kicked off with the quarterly releases from JPMorgan Chase (JPM), Wells Fargo (WFC), and Bank of New York Mellon (BK), which topped earnings estimates and provided positive management commentaries.

Analysts have lately turned positive on near-future bank performance, as stronger economic activity spurred by the rate-cut cycle is expected to enhance their revenues going forward, offsetting the negative effects of lower interest rates.   The positive start to the Q3 season is reassuring, given that the banks are both the bellwether and the backbone of the economy. JPMorgan’s positive assessment of consumer and corporate health within what it views as a Goldilocks economy adds some tailwind to investor sentiment.  

Stocks That Made the News

¤ The Financials have achieved the second-best performance among the S&P 500 sectors in the past 12 months, helped by the continued positive surprises from banks and other financials. This past week, Wells Fargo (WFC) surged by over 6% and JPMorgan Chase (JPM) rose by almost 5%, pushing the KBW Bank Index to its highest level since April 2022.

¤ The economic news that painted a Goldilocks picture, coupled with the outlook for further cuts, led to a broader rally in tech stocks, particularly in semis. Nvidia (NVDA) lent its weight to the rally, surging by 6.1% following a slew of analyst upgrades and reports from chip producers highlighting the immense demand for Nvidia’s AI offerings.

¤ Super Micro Computer (SMCI) surged by over 13% last week following the company’s announcement of the release of a new liquid cooling solution for data centers, positioning Super Micro for potential growth in this rapidly growing market. In addition, SMCI said that it is currently shipping more than 100,000 AI GPUs per quarter, with the significant volume of GPU shipments indicating accelerating demand that could translate to billions of dollars in revenue.

¤ Taiwan Semiconductor Manufacturing (TSM) added to investor optimism toward chip stocks as it reported year-over-year growth of 39% in September, which far exceeded analyst estimates.  

¤ Tesla (TSLA) was last week’s worst S&P 500 performer with a decline of almost 12%. The EV maker’s shares tumbled following its “We, Robot” event that showcased Tesla’s autonomous taxi, the “Cybercab”, and larger “Robovan” vehicle. Analysts and investors seemed underwhelmed as Tesla failed to provide concrete details and timelines.

¤ On the other hand, Uber Technologies (UBER) saw its stock surge by almost 16% last week, hitting an all-time high, after ridesharing investors’ fears dissipated following Tesla’s failure to impress the markets with its robotaxi initiatives.  Jefferies analysts said that Tesla’s “toothless taxi is a best-case outcome for Uber.” 

¤ Fastenal (FAST) surged by over 10% after the industrial distributor’s Q3 revenues and earnings surpassed analysts’ expectations.

¤ Amazon (AMZN) stock rose by 3.5% last week after Amazon’s October Prime Day achieved record-breaking results, hitting new highs with both sales and items sold. In addition, following its third annual Amazon Day Symposium, Evercore ISI said it has “incremental confidence in AMZN” as its number one pick in “Net Long in the Large Cap space.”  

¤ Alphabet (GOOGL) fell by 2.6% for the week, as the stock was weighed down by concerns about a potential antitrust-related breakup. The U.S. government expressed renewed interest in splitting up Alphabet’s advertising and Android businesses to reduce its market dominance. Alphabet is likely to appeal any breakup decision, which could lead to a prolonged legal battle lasting years. Still, some analysts believe that the breakup might benefit Alphabet’s shareholders, as Android’s immense value could transpire better through its monetization as a separate business.

Upcoming Earnings and Dividend Announcements

The Q3 2024 earnings season is in full swing, with many newsworthy earnings releases scheduled for this week. These include financial sector leaders Bank of America (BAC), Citigroup (C), Goldman Sachs Group (GS), and Morgan Stanley (MS).

In addition, heavyweights from other industries will release their quarterly results this week, including Johnson & Johnson (JNJ), UnitedHealth (UNH), United Airlines Holdings (UAL), ASML Holding (ASML), Abbott Laboratories (ABT), Netflix (NFLX), Taiwan Semiconductor Manufacturing (TSM), and Procter & Gamble (PG).  

Ex-dividend dates are coming this week for AbbVie (ABBV), Abbott Laboratories (ABT), PNC Financial (PNC), EOG Resources (EOG), Procter & Gamble (PG), Colgate-Palmolive (CL), and other dividend-paying firms.   

For additional exclusive market insights and content from TipRanks Macro & Markets research analyst Yulia Vaiman, click here.