Weekly Market Update: Q3 Earnings Season Off to a Strong Start   

In the Coming Week:

  • Retail Sales
  • Industrial Production and Capacity Utilization
  • Housing Starts
  • U.S. Leading Indicators

Weekly Highlights:

  • Producer Price Index and Core PPI
  • Federal Reserve September Policy Minutes
  • Consumer Price Index and Core CPI
  • Consumer Sentiment

The major stock indexes had a mixed performance, as investors considered inflation data and dovish signals from the Federal Reserve. Large-cap value stocks did well, supported by solid earnings reports from Citigroup, Wells Fargo and JPMorgan Chase. These banking giants kicked off the third-quarter earnings season on a positive note, benefiting from higher interest rates. Concerns about a potential widening conflict in the Middle East following Hamas attacks on Israel boosted energy and defense stocks but had a negative impact on airlines and cruise operators.

The STOXX Europe 600 Index rose by 0.95% in Europe, bringing an end to three weeks of losses, attributed to dovish Fed comments and reports regarding potential economic stimulus measures in China. Major European stock indexes had mixed results, with Italy’s FTSE MIB up 1.53%, Germany’s DAX down 0.28% and France’s CAC 40 Index falling by 0.80%. The U.K.’s FTSE 100 Index gained 1.41%. European government bond yields decreased, as investors sought safe-haven assets in response to the Middle East tensions, although strong U.S. inflation data limited the decline in yields.

As reported Wednesday, the September U.S. Producer Price Index (PPI) increased by 0.5% – a slight drop from the 0.7% rise in August, surpassing economists’ expectations of a 0.3% increase. The core PPI, which excludes food, energy and trade service prices, rose 0.2% for the second consecutive month. Year-on-year, the headline PPI was up 2.2%, the highest rate since April, while core prices increased 2.8%, slightly down from the August figure of 2.9%. Goods prices continued to outpace service costs, with goods rising by 0.9% and services by 0.3% in September. Energy prices increased by 3.3%, down from the previous month but still significant, and wholesale food prices jumped by 0.9%. While the inflation data was higher than expected, it remains below levels seen a year ago. The PPI report is gaining attention, as it precedes Thursday’s crucial consumer inflation report.1

The Federal Reserve’s September policy meeting minutes revealed that officials were uncertain about the economy’s future and opted for a cautious, meeting-by-meeting approach to interest-rate policy. Most participants considered the economic outlook highly uncertain, citing volatile data regarding the impact of prior interest rate hikes. While data suggested slowing inflation, most Fed officials still saw potential inflation risks, especially in global oil markets and food prices. Despite solid economic expansion, some officials saw downside risks to growth and upside risks to unemployment, partly due to factors like the auto workers’ strike. The Fed staff held a more optimistic view of the economy in September, expecting stronger growth this year compared to the next two years. The minutes noted the importance of balancing the risks of tightening monetary policy and keeping it insufficient. Although the 12 voting Fed officials unanimously maintained interest rates at a 22-year high, they indicated a possible additional rate hike by year-end. Most Fed officials believed one more increase would likely be appropriate. Some officials discussed shifting the focus from raising the policy rate’s height to determining how long to maintain the policy rate at restrictive levels. In their economic projections, Fed officials reduced their forecast for rate cuts in the following year. The minutes, seen as outdated due to recent increases in long-term bond rates, have led many economists to believe that the Fed is unlikely to raise rates further in the current cycle. According to some Fed officials and analysts, rising yields on 10-year Treasury bonds have tightened financial conditions, potentially cooling the economy without additional rate hikes.2

U.S. consumer prices increased by 0.4% in September – a slight decrease from the 0.6% rise in the previous month but higher than the expected 0.3% advance, according to the Labor Department.3 Over the year ending in September, inflation remained steady at a 3.7% rate, surpassing the anticipated 3.6% increase. The core inflation rate, excluding food and energy, rose by 0.3% for the second consecutive month, aligning with expectations, and the 12-month core inflation rate decreased from 4.3% to 4.1%, in line with forecasts. Shelter costs, gasoline prices and the energy index significantly contributed to the increase in consumer prices, while the food index rose for the third consecutive month. Notably, rent, motor vehicles and recreation boosted the core inflation rate, while used car prices decreased. Services, excluding energy, increased by 0.6%. Inflation has moderated over the past year, but there is uncertainty about reaching the Fed’s 2% target. Economists expect the Federal Reserve to maintain its current stance at the November meeting, focusing on how long to keep policy rates restrictive rather than raising them further.

On Thursday, the Labor Department released the initial jobless claims for the week ending October 7. The number of seasonally adjusted initial jobless claims remained unchanged at 209,000, the same as the previous week’s revised level, which was adjusted upward from 207,000. The 4-week moving average decreased by 3,000 to 206,250, with the last week’s average revised upward by 500. For the week ending September 23, the total number of continued weeks claimed for benefits across all programs decreased by 2,205 to 1,609,943. In the same week in 2022, there were 1,255,127 weekly claims filed for benefits in all programs.

The University of Michigan’s consumer sentiment gauge dropped to a preliminary October reading of 63, down from 68.1 in the previous month, marking the lowest level since May 2023. This decline was more significant than expected, with economists anticipating an October reading of 67.4. Americans’ expectations for overall inflation over the next year surged to 3.8% in October, up from 3.2% in the prior month, reaching the highest level since April. Expectations for inflation over the next five years also increased to 3% from 2.8% in September. In addition to the decline in consumer sentiment, the report showed a decrease in consumers’ views on current conditions, which fell to 66.7 in October from 71.4 in the previous month. Their expectations also dropped, with a barometer of future expectations decreasing from 66 to 60.7. This decline in consumer sentiment and heightened concerns about inflation can have implications for price pressures in the economy, as consumers expecting higher inflation may make it easier for businesses to raise prices.4


1 https://www.bls.gov/news.release/ppi.nr0.htm

2 https://www.federalreserve.gov/monetarypolicy/files/fomcminutes20230920.pdf

3 https://www.bls.gov/news.release/cpi.nr0.htm

4 https://www.dol.gov/ui/data.pdf

5 http://www.sca.isr.umich.edu/

Important Information:

Warren Gerow is an independent investment wealth consultant to Sightline Wealth Management.

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