This week, PCE and non-farm joined hands to "explode" the market, with major tech giants' financial reports being released in succession

According to the financial news app Zhitong Finance, the US stock market is approaching historical highs, entering one of the busiest weeks of the year. This week, the latest data on the inflation indicator PCE favored by the Federal Reserve, the October non-farm employment report, as well as the financial reports of tech giants Alphabet (GOOGL.US), Apple (AAPL.US), Amazon (AMZN.US), Microsoft (MSFT.US), and Meta (META.US) will determine the direction of the US stock market at the beginning of November.

Late last week, Tesla (TSLA.US) stock surged, driving the Nasdaq Composite Index up by about 0.9%, just a step away from a new all-time high. Meanwhile, the S&P 500 index fell by over 0.3%, and the Dow Jones Industrial Average fell by over 2.6%.

This week, data on US third-quarter economic growth, job vacancies, service and manufacturing activities, consumer confidence, and more will also be released. In addition, a busy week of corporate earnings is expected, with 169 companies in the S&P 500 index set to report quarterly results. Companies like Ford (F.US), AMD (AMD.US), McDonald's (MCD.US), Eli Lilly (LLY.US), and Exxon Mobil (XOM.US) will all be closely watched.

US Economic Performance

Recently, the market has increasingly expected the US economy to experience a so-called soft landing, where the inflation rate falls to the Federal Reserve's 2% target without a significant decline in economic growth.

In the coming week, a series of economic data will test investors' bets. Firstly, the Bureau of Economic Analysis is scheduled to release the third-quarter Gross Domestic Product (GDP) estimate on Wednesday. The US economy is expected to continue on a steady path, with an annualized growth rate of 3% for this quarter, consistent with the second quarter.

On Thursday, the latest data on the inflation indicator favored by the Federal Reserve will be released. Economists expect that the annual "core" personal consumption expenditure (excluding volatile food and energy categories) for September will reach 2.6%, lower than August's 2.7%. Economists predict that compared to the previous month, core personal consumption expenditure (PCE) will grow by 0.3%, compared to 0.1% in the previous month.

On Friday, the Bureau of Labor Statistics will release the latest data on the US employment situation. According to Bloomberg data, the October employment report is expected to show that the US economy added 125,000 non-farm jobs, with the unemployment rate remaining at 4.1%. In September, the US economy added 254,000 jobs, and the unemployment rate dropped to 4.1%.

Michael Reid from RBC Capital Markets wrote in a report to clients last Thursday, "After experiencing two hurricanes, a strike, and consecutive holidays, we expect a lot of noise in Friday's October employment report."

Considering various factors that could impact job growth, Reid wrote that the unemployment rate will "provide the best read on the employment market this month." Entering a busy week of economic data, according to the data from the Chicago Mercantile Exchange's CME FedWatch Tool, the market expects a 96% probability of a rate cut by the Federal Reserve at the November meeting.

Intensive Releases from Tech Giants

37% of the constituents of the S&P 500 index have already reported their quarterly earnings, with the current annualized return growth rate of the index standing at 3.7%. According to FactSet data, this will be the slowest annualized growth rate since the second quarter of 2023.

The performance of large tech companies will test this claim in the coming week. FactSet recently pointed out that the annualized earnings of the "Big Seven" tech stocks this quarter are expected to increase by 18.1% year-on-year, while the earnings of the other 493 companies in the S&P 500 index are only expected to grow by 0.1%.

The rebound of tech stocks late last week has brought several tech giants back near historical highs. Apple, Alphabet, Amazon, Meta, and Microsoft are all expected to release their quarterly earnings this week, potentially once again driving artificial intelligence back into the market spotlight. Investors will closely monitor the capital investment and corresponding profitability of these companies in this emerging technology.

Given the recent significant rise in large tech stocks, Nancy Tengler, CEO and CIO of lafer Tengler Investments, also issued a warning that market reactions after earnings releases may be relatively subdued. Tengler said, "You might see companies like Microsoft beating expectations, historically with a 76% probability of beating earnings, but you might not get anything from the stock price."

Rising U.S. Treasury Yields Not All Bad

The past month's economic data has surprised Wall Street. The Citi Economic Surprise Index, which measures whether U.S. economic data is better or worse than expected, has surged to its highest level since April.

At the same time, the 10-year U.S. Treasury yield has also been rising, increasing by about 50 basis points over the past month, hovering around 4.2%. In some cases, an increase in Treasury yields may be unfavorable for the stock market, but as noted by Callie Cox, Chief Market Strategist at Ritholtz Wealth Management, stock strategists believe that if rising yields coincide with strong economic growth, it may still be a favorable sign for the stock market BlackRock's Chief Investment and Portfolio Strategist for the Americas, Gargi Chaudhuri, said, "(Yields) are gradually rising... for the right reasons, with expectations of higher growth, history has often favored profit growers. Therefore, it is still very important to make quality the core of the investment portfolio."