"Terror Data" joins hands with major bank financial reports this week! Expectations for interest rate cuts will face further tests
This week, the market is focusing on the monthly retail sales report from the United States and the financial reports of major banks, including Bank of America, Goldman Sachs, and Morgan Stanley. Last week, the US stock market closed at historical highs, with Nasdaq, S&P 500, and Dow Jones all rising by over 1%. The expectation of no interest rate cut by the Federal Reserve in November has strengthened, with the market estimating the possibility rising to 18%. Analysts believe that if there is no crisis in inflation and the job market, the Federal Reserve has no reason to cut interest rates
The U.S. stock market closed at record highs last week as investors began digesting quarterly earnings reports and debates intensified over what action the Federal Reserve would take at its November meeting. The Nasdaq, S&P 500, and Dow Jones Industrial Average all rose by over 1% last week, with both the Dow and S&P 500 closing at historic highs on Friday.
In the upcoming week, the U.S. monthly retail sales report, known as the "scary data," will lead the economic calendar as investors assess whether the economy is picking up speed again following the unexpectedly strong September jobs report. In terms of corporate news, major banks such as Bank of America (BAC.US), Goldman Sachs (GS.US), and Morgan Stanley (MS.US) will release their earnings reports, while United Airlines (UAL.US) and Netflix (NFLX.US) will also be in focus this week.
Expectations for No Rate Cut by the Fed in November Strengthen
Speculation that the Federal Reserve will not further cut interest rates at the November meeting has been growing over the past week. The September non-farm payroll report helped alleviate concerns about a rapid deterioration in the job market. The report showed a further decrease in the unemployment rate and one of the highest monthly job gains of the year. Additionally, the latest monthly CPI report released last Thursday showed a core price increase higher than expected. The PPI released on Friday also showed a similar trend, with core prices rising by 2.8%, exceeding Wall Street's expectation of 2.6%.
Some believe that considering these data points and the latest minutes from the September Fed meeting, "some" officials may support a smaller rate cut, leading to the possibility that the Fed will keep rates unchanged in November.
According to data from the CME FedWatch tool, as of last Friday, the market estimated an 18% chance that the Fed will not cut rates in November, up from 3% a week ago.
Eric Wallerstein, Chief Market Strategist at Yardeni Research, stated, "As long as the inflation rate does not approach 2% so rapidly, and the labor market does not show signs of crisis (which I do not foresee), I believe there is no reason for the Fed to further cut rates this year."
Retail Sales Data
Stronger-than-expected economic data has fueled discussions about "no rate cuts." Investors will see another indicator of the U.S. economic condition this week with the release of the September retail sales report on Thursday. Economists expect a 0.2% increase in retail sales for September, following a 0.1% increase in August, breaking the downward trend predicted by economists.
The Jefferies economic team led by Thomas Simons wrote in a report to clients last Friday, "Retail sales are particularly likely to be a significant factor affecting the market, as the divergence in this data has widened, and scrutiny of consumer health has intensified. We caution against reading too much into forecasts that are contrary to consensus (up or down), as retail sales measure a significant portion of spending, primarily on goods rather than services, and are measured at nominal prices. Weakness may simply be due to continued deflation or disinflation in goods."
 and Wells Fargo (WFC.US)—have also satisfied the market. At the beginning of this week, investors' focus will still be on financial stocks, with Morgan Stanley, Goldman Sachs, and Bank of America set to release their financial reports, shifting attention to Netflix's earnings after Thursday's market close.
The stock price of this streaming giant has risen by about 50% this year, approaching its historical high. Wall Street expects Netflix to report earnings per share of $5.16 and revenue of $9.77 billion; this implies a nearly 40% growth in earnings compared to the previous year.
However, Wall Street is fiercely debating whether the stock can maintain its significant upward momentum. In the short term, Citigroup analyst Jason Bazinet believes that Netflix announcing further price increases in the U.S. could serve as a catalyst for the stock. Bazinet wrote, "We expect Netflix's stock to rise after announcing a price increase in the U.S., but we anticipate that as investors' expectations for earnings per share of $25 in 2025 are shattered, Netflix's stock price will eventually decline."
Rising U.S. Treasury Yields
The 10-year U.S. Treasury yield has hovered around 4.1% for the first time since the end of July. Over the past week, the 10-year U.S. Treasury yield has risen by about 30 basis points, as there are signs that inflation may be more challenging than initially thought, while economic growth data remains steady, leading investors to lower their expectations of rate cuts.
For most of the past few years, high yields have been a headwind for the stock market. However, Piper Sandler's Chief Investment Strategist Michael Kantrowitz stated last Thursday that yields may not have risen to a level that poses too much of a headwind. Kantrowitz said, "I don't think rising rates are that concerning for the stock market as a whole. But it is a significant factor."
Kantrowitz pointed out that sectors such as real estate and small-cap stocks like the Russell 2000 Index have benefited from investors' expectations of rate cuts but have lagged behind during the recent rise in the 10-year U.S. Treasury yield. Kantrowitz added that the current rise in rates is determining leading sectors in the market and acting as a drag on indices other than the S&P 500. He said, "If rates continue to rise, I don't think it's a big problem for the stock market unless it persists for several months."
