A fresh government inflation rate and the US midterm elections are the most anticipated events on Wall Street’s radar this week as investors continue to digest the Fed’s latest rate decision.
Thursday morning will bring traders the closely watched Consumer Price Index (CPI) for October. Economists polled by Bloomberg expect headline CPI for the month to come in at 7.9% annually, down from September’s 8.2% year-on-year increase. Core CPI, which excludes the volatile food and energy components of the metric, is expected to come in at 6.5%, little changed from 6.6% last month.
Meanwhile, stocks could also be guided by the result of this year’s midterm elections on Tuesday. All three major indices closed higher on Friday but lower for the week after October jobs data, an onslaught of underperforming earnings reports and another outsized rate hike from the Federal Reserve amid claims of more rate hikes coming on the heels.
In the five days to Friday, the Dow Jones Industrial Average fell 1.5%, the S&P 500 fell 3.3% and the Nasdaq Composite fell 5.7% — the tech-heavy index’s worst weekly performance since January as mega-caps Apple (AAPL), Amazon. com (AMZN) and Alphabet (GOOGL) each fell more than 10% after third-quarter financial results disappointed Wall Street.
The US economy added 261,000 jobs in October, another robust number of new hires, which reassured policymakers that working conditions can weather another hike in Fed interest rates to combat historic inflation. The central bank delivered a fourth straight rate hike of 75 basis points, while pointing to a slower rate hike pace but a higher final rate.
Investors were hoping for signals from the central bank on possible monetary easing, which would provide tailwinds for major indices after they closed higher last month on anticipation of a monetary policy shift. But Powell balked at the notion that a change in course by the Fed was imminent as inflation and payrolls were still high.
The story goes on
“Restoring price stability is likely to require a policy hawkish stance for some time,” he said in prepared remarks following Wednesday’s policy announcement. “The latest inflation data has again been higher than expected.”
Jerome Powell, Chairman of the Federal Reserve Board, delivers a press conference in Washington, United States, on November 2, 2022. Portal/Elizabeth Frantz
A wave of Wall Street strategists have raised their expectations of how much the Federal Reserve will hike interest rates after Wednesday’s “slower but higher” message from Powell — and this week’s October CPI could see revised forecasts confirm and give investors clues as to the magnitude of December’s surge.
Goldman Sachs was the first major bank in the days leading up to the November FOMC meeting to warn that rates could rise as high as 5% by March 2023.
TD Securities raised its final interest rate forecast to 5.25%-5.50% from 4.75%-5.00% and plans to raise it by 50 basis points at the next meeting on Dec. 13-14. BNP Paribas expects a fifth rise of 75 basis points next month and a 5.25% terminal fed funds level in the first quarter of next year.
Following Friday’s jobs report, Bank of America economists revised their forecasts higher from 4.75-5.0% to a final rate of 5.0-5.25% and expect December to rise by 50 basis points.
“We believe the risks to our revised FOMC interest rate path remain on the upside and the upcoming CPI inflation prints and November jobs report will weigh heavily on the short-term Fed policy path,” said strategists led by Michael Gapen on Friday Note.
On Tuesday, Wall Street will tune in to see which party controls the government legislature and several governorships in what may be the first midterm election since 2006, in which the majority party in the House and Senate — in this case, the Democrats — will lose the elections Control under control.
Elections have brought short-term volatility to the market across the board, but relative calm in the three months that followed, MSCI Research’s Abhishek Gupta and Román Mendoza wrote in a recent note.
“Looking ahead to the midterm elections, the broader U.S. stock market has historically reacted positively, on average, to the incumbent political party’s ability to maintain its position in both houses of Congress,” they wrote. “A change of control has created uncertainty about the President’s party’s ability to legislate and influence regulations, leading to increased volatility on a relative basis.”
People participate in a campaign in support of Democratic U.S. Senator nominee John Fetterman and Democratic nominee for Pennsylvania Governor Josh Shapiro in Philadelphia, Pennsylvania, the United States, November 5, 2022. Portal/Hannah Beier
On the corporate side, the reporting season is entering its final phase. Of the 85% of S&P 500 companies that have reported actual third-quarter results so far, 70% have earnings per share above estimates, below the 5-year moving average of 77% and the 10-year moving average of 73% reported FactSet research. And for those whose numbers came in above expectations, the average hit was just 1.9% higher than forecast, well below the 5-year average of 8.7% and the 10-year average of 6.5% .
If the 1.9% is the latest percentage hit for the quarter, it will be the second-lowest surprise surprise average for positive corporate earnings over the past nine years.
This week’s earnings headlines include Activision Blizzard (ATVI), BioNTech (BNTX), Lyft (LYFT), Walt Disney (DIS) and Rivian Automotive (RIVN).
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economic calendar
Monday: consumer creditSeptember ($30.000 billion, $32.241 billion)
Tuesday: NFIB Small Business OptimismOctober (91.3 expected, 92.1 last month)
Wednesday: MBA Mortgage Applicationsweek ending Nov 4 (-0.8% in previous week); wholesale salesmom, September (0.4% exp., 0.1% mom); Wholesale StocksMoM, September Finals (0.8% expected, 0.8% mom)
Thursday: consumer price indexMoM, October (0.6% expected, 0.4% mom); CPI excluding food and energy, MoM, October (0.5% expected, 0.6% mom); consumer price indexYoY, October (7.9% expected, 8.2% mom); CPI excluding food and energyYoY, October (6.5% expected, 6.6% mom); CPI Index NSAOctober (298,572 expected, 296,808 in previous month); CPI Core Index SAOctober (300,094 expected, 298,660 in previous month); Real average hourly wages, YoY, October (-3.0% MoM); Real Average Weekly EarningsYoY, October (-3.8% MoM); Initial jobless claimsweek ending November 5 (220,000 expected, 217,000 last week); Ongoing Claimsweek ended October 29 (1.500 million expected, 1.485 in previous week); Monthly budget statementOctober (-$95.0 billion exp., -$429.7 billion in previous month)
Friday: University of Michigan Consumer SentimentNovember preliminary (59.5 expected, 59.9 last month); U. of Mich. Current ConditionsNovember Preliminary (63.4 expected, 65.6 last month); U. from me. expectationsNovember Preliminary (54.5 expected, 56.2 last month); U. from me. 1 year inflationNovember preliminary (5.1% expected, 5.0% in previous month); U. of Mich. 5-10 years of inflationNovember Prelim (2.9% expected, 2.9% mom)
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results calendar
Monday: Activision Blizzard (ATVI), BioNTech (BNTX), Choice Hotels (CHH), Groupon (GRPN), Lyft (LYFT), Mosaic (MOS), Plantir Technologies (PLTR), Take-Two Interactive Software (TTWO), TripAdvisor ( TRAVEL)
Tuesday: Affirm (AFRM), Allbirds (BIRD), AMC Entertainment (AMC), Constellation Energy (CEG), Coty (COTY), DuPont (DD), GoodRX (GDRX), Lemonade (LMD), Lordstown Motors (RIDE), Lucid Group (LCID), News Corp. (NWSA), Norwegian Cruise Line (NCLH), Novavax (NVAX), Occidental Petroleum (OXY), Planet Fitness (PLNT), Upstart (UPST), Walt Disney (DIS), Wynn Resorts (WYNN )
Wednesday: AppLovin (APP), Beyond Meat (BYND), Bumble (BMBL), Canopy Growth (CGC), Hilton Grand Vacations (HGV), iRobot (IRBT), Rivian Automotive (RIVN), Roblox (RBLX), SeaWorld Entertainment (SEAS) , Starwood Property Trust (STWD), Signify Health (SGFY), Unity Software (U), Wendy’s (WEN), ZipRecruiter (ZIP)
Thursday: AstraZeneca (AZN), Brookfield Asset Management (BAM), Compass (COMP), Dillard’s (DDS), Honest Company (HNST), LegalZoom.com (LZ), Nio (NIO), Poshmark (POSH), Ralph Lauren (RL) , Six Flags (SIX), Tapestry (TPR), Toast (TOST), Utz Brands (UTZ), Warby Parker (WRBY), WeWork (WE)
Friday: Spectrum Marks (SPB)
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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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