I'm Colette Auclair, and here is Schwab's early look at the markets for Tuesday, October 13.
Some of the largest U.S. banks report before today's opening bell and could set the tone of trading on Wall Street today.
JPMorgan Chase, Goldman Sachs, Wells Fargo, and Citigroup kick off the informal start of third-quarter earnings season, followed by more big banks tomorrow and some regional banks. Investors will monitor results to gauge the impact of rising Treasury yields on net interest margins, lending growth, and dealmaking activity.
Inflation and consumer spending come into focus tomorrow at 8:30 a.m. ET with the Consumer Price Index for September. Consensus is for a sharp 0.6% month-over-month increase in headline CPI, according to Briefing.com, but only a 0.2% rise in core CPI that excludes volatile food and energy prices.
"Based on comments from Fed officials, we’re focusing on the monthly prints and inflation breadth," said Collin Martin, head of fixed income research and trading at the Schwab Center for Financial Research. "Sixty percent of CPI components rose by more than 3% on a year-over-year basis in August, and we’ll need to see that share decline to be more confident that inflation is moving meaningfully lower."
September existing home sales arrive at 10 a.m. ET today. The market expects a downbeat number, according to Briefing.com. Mortgage rates hit a three-year high last week, with implications for consumer spending and economic growth.
Though bank earnings could set the tone, these days oil prices often drive the market. Yesterday, oil rose as Ukraine and Russia traded attacks on energy facilities and the market reacted to weekend attacks on Saudi Arabia by the Iran-backed Houthis. An "energy ceasefire" announced by President Trump for Russia and Ukraine appeared to collapse before it even began.
Worries that the U.S. might get drawn into Saudi Arabia's conflict with the Iran-backed Houthis in Yemen also underpinned oil prices.
Still, crude oil has been relatively stable lately, perhaps because exports out of the Gulf improved over the last month. It's products like diesel where prices have risen, which creates better "crack spreads" for the refining industry. Stocks like Marathon Oil and Valero are up sharply over the last two months.
Treasury trading was shut yesterday for a U.S. holiday, leaving the 10-year note yield at 5.24% where it closed last Friday. That's near 24-year highs despite a sharp drop recently in expectations for a Federal Reserve rate hike later this month.
As of late Monday, odds of an October hike stood at 22% according to the CME FedWatch Tool. But the market factors in 82% chances of a hike before year-end. The Fed meets again in December.
"A very strong CPI print would likely be needed to shift the odds towards a hike, but it seems like the Fed may take a patient approach," Martin said. "We still expect a hike later this year."
Cleveland Fed President Beth Hammack, a known hawk, said Monday that when feasible, she favored small, quick adjustments in rates to keep inflation expectations anchored rather than waiting and raising the risk of a larger course correction later, Bloomberg reported. However, she didn't say if she backed a rate hike this month, and previously said the Fed needs to review more information before deciding.
In an interview with the Wall Street Journal, Hammack said policy needs to "be more restrictive."
Returning to the bank results, financial stocks approach earnings mostly lower. The third quarter was riddled with tough news, including delayed initial public offerings (IPOs), bearish forecasts from banks about their own balance sheets, and the first Fed hike in three years.
Last month, Bank of America warned that its third-quarter investment banking revenue could slow and forecast flat trading revenue. Bank of America wasn't alone in issuing a gloomy outlook.
Citigroup's shares fell last month after the bank projected mid-single-digit quarterly revenue growth from a year earlier for its markets business, a measure of trading activity. That reinforces another possible headwind for banks: Their trading businesses face tough sequential comparisons to the second quarter after market volatility boosted trading then. The weak Treasury market might also have hurt trading volume.
As a sector, financials are expected to deliver only 3% annual earnings growth in the third quarter, compared with 29.6% for the S&P 500, according to FactSet.
Johnson & Johnson, UnitedHealth, Domino's Pizza, and Albertson's also report this morning, providing perspective on the health and consumer sectors.
Year-over-year S&P 500 earnings per share growth is expected to reach 29.6% this quarter, according to FactSet. However, that might not be enough to impress, as investors likely want to hear about 2027 guidance and return on investment in the AI sector. A simple "beat-and-raise" quarter may not satisfy many investors, so the bar is high across sectors.
Some AI-related earnings come later this week including ASML early tomorrow and Taiwan Semiconductor Manufacturing on Thursday. Both might help investors better understand underlying demand for chips and other components key to the AI build-out.
Market action was bifurcated Monday. The Nasdaq fell moderately on pressure from chip stocks, while the S&P 500 stayed near sea level and the Dow Jones Industrial Average got a small boost from consumer staples, telecom, and energy firms.
Breadth is climbing after a long slide. By the end of Monday, 36% of S&P 500 stocks traded above their 50-day moving average, up from six-month lows near 20% recorded earlier this month. That's still well below the August peak of 70%.
Eight of 11 S&P 500 sectors rose Monday, extending the broadening theme. Info tech finished dead last, down almost 1%, but energy and communication services ended with 1% gains thanks to rising oil and strength in Meta Platforms. It might be constructive that the market held up relatively well Monday despite tech weakness and rising oil, Briefing.com pointed out, though one day isn't a trend.
Individual market movers Monday included Meta Platforms climbing 3.4% as the company launched its Muse Wonder AI model family, which it said has "frontier-level performance."
Visa rose 1% to new record highs. The stock is up 9% this month amid resilient consumer spending. Expanding digital payment opportunities are another tailwind, Briefing.com reported.
Lamb Weston, a food processing firm, climbed almost 5% after beating consensus on earnings and raising guidance.
LVMH fell 2.6% after sales growth for the luxury giant slowed in the most recent quarter to just 1%. The company cited a more "challenging China consumer backdrop," the Wall Street Journal reported.
Memory chip stocks fell, with Micron, SK Hynix, and Sandisk all under pressure following weakness earlier Monday in South Korea's stock market. Sandisk lost almost 6% and Micron fell almost 4%. The weakness in memory chips reflected worries about possible cheaper Chinese competition.
Memory softness also took down shares of AI and chip infrastructure firms including Lumentum, Arm Holdings, Intel, Oracle, and Marvell, all of which fell 3% or more. Lumentum fell almost 10%.
IonQ plunged 9% on a Wall Street Journal report that the quantum computing company aims to purchase privately held cybersecurity firm Elisity for up to $1.3 billion.
Chipotle fell nearly 4% after Starbucks said it wouldn't be buying the company despite recent rumors.
The Dow Jones Industrial Average® ($DJI) climbed 195.60 points (+0.38%) Monday to 51,850.55; the S&P 500 Index ($SPX) slipped 4.30 points (-0.06%) to 7,807.24, and the Nasdaq Composite® ($COMP) dropped 120.27 points (-0.44%) to 27,245.90.