Here is Schwab's early look at the markets for Monday, October 27.
The outcome of this week's Federal Reserve meeting seems all but ensured after Friday's mild inflation data, while investors also brace for mega-cap earnings. Trade remains front and center, too, when Presidents Trump and Xi meet this Thursday.
Alphabet, Microsoft, Apple, Meta Platforms, Amazon and other heavy hitters line up to report Wednesday and Thursday but today looks light on earnings. Data remain hostage to the government shutdown—still in effect as of this recording. This Saturday, November 1, could be a possible "catalyst for change" in shutdown dynamics, said Michael Townsend, managing director, legislative and regulatory affairs at Schwab. That's when money for the food stamps program is projected to run out and the enrollment period for the Affordable Care Act health insurance program begins.
Though the Fed meeting would normally hog the spotlight, this week it arguably takes a back seat to mega-cap earnings. Five of the Magnificent Seven report Wednesday and Thursday. This has been mostly an AI- and tech-driven bull market, so what these firms say about their spending plans and AI demand likely will have a bigger market impact this week than what looks like a pre-ordained Fed decision to cut rates.
Expectations are very high for a full round of positive news related to the Fed, mega caps, and trade in days ahead, but the market enters the new week at all-time highs for most of the major indexes, with valuations historically elevated, too.
"From a technical perspective, it’s bullish to see the majors at fresh all-time highs, but the flip side of that is that market expectations are very high in regard to all three of those catalysts going into the week," said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. "I’m not suggesting that we set up for a 'sell on the news' week, but given the set-up, along with a relatively subdued 16 VIX, I think the potential for volatility is elevated."
The Cboe Volatility index, or VIX, fell below 17 late Friday after surging to nearly 29 last week when sudden credit worries plagued the financial sector. Those fears subsided somewhat early last week when two of the banks whose loans came under scrutiny reported solid earnings.
"It's an open question whether these bankruptcies—along with some other bad loans by a couple of regional banks—were isolated incidents or the proverbial canaries in a coal mine," said Collin Martin, director, fixed income strategy, at the Schwab Center for Financial Research. "We think it's somewhere in between."
According to Standard and Poor's, the trailing 12-month default rate for speculative-grade debt has been above 4% for the past two years. It was 4.8% as of August. Those default rates are up significantly from their lows of late 2020 through early 2023 and are more in line with historical averages.
Though credit fears dissipated, the market buzzed over Friday's Consumer Price Index, or CPI. Headline inflation rose 3% from a year earlier, versus expectations of 3.1%. Prices rose 0.3% month over month, below expectations for a 0.4% increase. Core inflation, which excludes food and energy, rose 3% in September, down from 3.1% in August.
"It looks like a rate cut by the Fed next week is all but a sure thing," said Kathy Jones, Schwab's chief fixed income strategist.
As of late Friday, futures trading priced in a 97% chance of a rate cut when the Fed delivers its decision at 2 p.m. ET Wednesday, according to the CME FedWatch Tool.
CPI also reinforced expectations that the Fed will cut rates next week and again in December in response to a weakening labor market. However, it's far from certain with inflation at these elevated levels. For Fed policy makers, the ultimate nightmare would likely be having to re-adjust rates back up to fight inflation triggered in part by cutting too dramatically. This happened in the 1980's and has become a third rail for the central bank. Institutional memories are long.
In other data Friday, final October consumer sentiment from the University of Michigan remained in dismal territory at 53.6%, down from an already weak 55.0% earlier in the month. It's been near the bottom of historic charts for several months, and the final October reading was slightly below the Briefing.com consensus.
Year-ahead and long-run inflation expectations in the sentiment report were 4.6% and 3.9%, respectively, unchanged from the preliminary figures.
The S&P Global U.S. preliminary manufacturing PMI for October rose to 52.2%, up from the previous 52.0%. That keeps it in expansionary territory above 50%.
As the shutdown persisted, Federal workers missed another paycheck last week and many federal agencies have stopped functioning, raising concerns about a possible slowdown. Fed Chairman Jerome Powell might be asked at his press conference Wednesday to address the potential impact on economic growth.
Markets got a lift late last week when the White House announced that President Trump and China's President Xi will meet Thursday to discuss trade. The administration hinted that several deals with various countries could be coming down the pike, CNBC reported. Record highs Friday also reflected the relatively benign CPI and cemented the second winning week in a row for major indexes. The S&P 500 is up 15% this year and the Nasdaq is up 20%.
Trading didn't seem affected by Trump's threat to shut down trade talks with Canada. The scrimmage began when Ontario ran an ad featuring former U.S. President Ronald Reagan voicing opposition to tariffs. Ontario paused the commercial late Friday.
Treasuries backed off slightly from recent six-month highs Friday as the news flow buttressed "risk-on" trading. The 10-year yield finished at 4%, down one basis point for the week. The mild CPI reading kept yield gains in check. Yields move the opposite of Treasuries.
Sector gains Friday weren't as wide as might be expected for a market at fresh records, with four of 11 S&P 500 sectors in the red and health care and industrials barely higher. Energy was weakest, perhaps a sign of profit taking after a strong week. Several major energy giants report at the end of this week. On top Friday were info tech—which also led for the week as a whole—and communication services, followed by financials. Banks got a boost amid ideas that falling rates could raise demand for banking services.
The PHLX Semiconductor Index rose another 2% Friday, lifted by improved industry sentiment. Intel's earnings appeared positive for many moving pieces in the sector.
Still, Intel gave back most early gains Friday to close up just 0.6% despite beating Wall Street's earnings and revenue estimates. Guidance generally appeared solid. The chipmaker has undertaken a turnaround effort and has been bolstered recently by investments from both the U.S. government and chip giant Nvidia. Continued declines in foundry business growth remained a challenge last quarter for Intel.
Alphabet added 2.7% Friday after Anthropic announced it plans to expand its use of Google Cloud technologies, dramatically increasing its compute resources. In addition, analysts at Stifel raised their price target on Alphabet, saying advertising checks reveal third quarter strength in that category.
Ford accelerated 12% Friday following stronger-than-expected results, though the company lowered guidance due to a fire that affected supplies of aluminum.
Deckers Outdoor plunged 15% to end the week despite earnings and revenue that topped estimates last quarter. Investors appeared disappointed by guidance for fiscal-year sales that missed Wall Street's expectations.
Though some of the "froth" in meme and rare earth stocks, as well as metals, had faded earlier last week, buying re-emerged in those areas Friday as risk-on sentiment stormed back.
The Dow Jones Industrial Average® ($DJI) added 472.51 points Friday (+1.01%) to 47,207.12; the S&P 500 index (SPX) gained 53.25 points (+0.79%) to 6,791.69, and the Nasdaq Composite® ($COMP) rose 263.07 points (+1.15%) to 23,204.87.
For the week, the DJIA rose 2.2%, the S&P 500 rose 1.92%, and the Nasdaq climbed 2.31%.