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Wall Street Awaits Key Inflation Data

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U.S. stock futures are trading in negative territory to start the second week of October. This month generally remains volatile. The yield on the benchmark 10-year U.S. Treasury Note bounced back to above 4% this morning, its highest level since August.

Last week, the solid jobs data for September was the primary reason for the northward journey of this yield, which is a crucial indicator for mortgage and car loans. This is a significant jump for the 10-Year yield of 3.58% prevailing just a little more than a month.

This week, market participants will focus on the consumer price index and the producer price index data for September and the third-quarter 2024 earnings results of major banks, which will kickstart this earnings season. Our current projection shows that total Q3 earnings for the S&P 500 index are expected to be up 3.3% from the same period last year on 4.5% higher revenues.

Moving Toward a Safe Landing

On the other hand, inflation is gradually dwindling and approaching the Fed’s 2% target level. Moreover, an unexpectedly strong nonfarm payroll data for September, a decreasing unemployment rate and a firm average wage rate reduced concerns of a near-term slowdown in the U.S. economy.

On Oct 1, the Atlanta Fed GDPNow tracker showed the U.S. economy growing at a solid 2.5% in the third quarter after rising 1.4% and 3% in the first two quarters of 2024. This evaporates fears of an imminent recession.

A scenario of a falling inflation rate coupled with strong fundamentals of the U.S. economy is likely to enable the Fed to ensure a safe landing. The Fed is expected to reduce interest rates gradually rather than any aggressive cut.

The CME FedWatch tool currently shows an 87% probability that the central bank will reduce the benchmark lending rate by 25 basis points in November. Similarly, there exists an 86% chance that the Fed will cut the Fed fund rate by another 25 basis points in December.

Q3 Earnings in Focus

Major banks like JPMorgan Chase & Co. (JPM - Free Report) and Wells Fargo & Co. (WFC - Free Report) will report quarterly results this week. As of Oct 4, 21 S&P 500 companies reported third-quarter results. Total earnings for these 21 companies were up 20.3% from the same period last year on 2.7% higher revenues, with 71.4% beating EPS estimates and 71.4% beating revenue estimates.

Meanwhile, the largest investment bank. The Goldman Sachs Group Inc. (GS - Free Report) raised its 2024 year-end target for the S&P 500 index to 6,000 from 5,600 estimated earlier. This implies a 4.32% upside for the broad-market index from its current level. The firm also raised the 2025 target for Wall Street’s benchmark to 6,300 from 6,000 reported earlier.


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