Macrosynthesis
TLDR
- Stocks rally despite negative news
- Jobless claims rise
- Inflation comes in slightly above expectations
- Tech outperforms again
- Tesla stock tanks on lack of robotaxi details
- Roblox accused of fraudulent accounting
Stocks Rally Despite Negative News
Markets rallied to all-time highs, defying the usual seasonal sentiment, Middle East escalation concerns, and a slightly elevated consumer inflation report. Stocks surged on Friday, driven by strong earnings from major banks like JPMorgan (+4.4%) and Wells Fargo (+5.6%), lifting the S&P 500 (+0.6%) and Dow Jones (+1%) to new highs. Negative jobs data on Friday buoyed positive investor sentiment, tempering concerns the Fed would slow its rate decreases to a snail's pace - a concern that had markets churning Thursday morning. For the week, the Nasdaq 100, S&P 500, and Dow Jones increased 1.59%, 1.35%, and 1.36%, respectively.
Rising Unemployment Amidst Storms and Strikes
U.S. weekly jobless claims jumped by 33,000 to 258,000, driven by disruptions from Hurricane Helene and furloughs at Boeing amid a prolonged strike which led to Boeing firing 17,000 workers. (If you thought air travel sucks now, it will be getting worse.) This rise in joblessness marked the highest in over a year. Economists had forecasted 230,000 claims, but the surge was largely concentrated in states like Florida, North Carolina, and Washington. With additional impacts expected from Hurricane Milton, which recently struck Florida, jobless claims may remain elevated, complicating the labor market's outlook ahead of upcoming employment and Federal Reserve rate decisions.
Consumer Inflation Exceeds Expectations
In September, inflation exceeded expectations with a 0.2% increase, raising the annual rate to 2.4%. This rise was driven by higher food prices (0.4%) and shelter costs (0.2%), despite a 1.9% decline in energy prices. Other factors contributing to inflation included increased costs for used and new vehicles, medical care, and apparel.
Meanwhile, the Producer Price Index (PPI) fell below expectations. U.S. factory gate prices remained flat, missing the forecasted 0.1% rise. Service costs increased 0.2%, led by deposit services, while goods prices dropped 0.2%, largely due to a 5.6% fall in gasoline prices. Annual producer price inflation eased to 1.8%, while core PPI increased 2.8%.
Fed Looks for the Perfect Size Rate Cuts
With unemployment rising, the Federal Reserve has additional ammo for more robust rate cuts. Federal Reserve officials signaled the likelihood of more rate cuts, despite stronger-than-expected inflation and rising jobless claims. Chicago Fed President Goolsbee emphasized the need for rates to drop significantly, while NY Fed President Williams stressed the pace of cuts would depend on data. Some policymakers, including Atlanta’s Bostic, are open to pausing cuts in November.
Meanwhile most of Americans are left wondering when we will be able to afford a mortgage and a steak dinner out again. U.S. consumer sentiment declined in October, falling to 68.9 from September's 70.1, reflecting frustration over high prices, according to the University of Michigan’s survey. Despite cooling inflation and lower gas prices, concerns surrounding Hurricane Helene and Middle East conflicts may have contributed to the decline. Republican respondents reported a clearer drop in sentiment than Democrats.
Presidential and Congressional Race Too Close to Call Still
Less than a month away, the U.S. presidential election between Kamala Harris and Donald Trump is within the margin of error on polls. Key voted concerns include potential trade tensions, with Trump’s tariffs threatening European automakers and China’s economy. A Harris win could boost renewable energy sectors but raise corporate taxes, impacting profits. Additionally, geopolitical risks and trade policies will shape currency movements and emerging markets.
Recent polls show Donald Trump leading by six points in Arizona, while Kamala Harris holds a four-point lead in Pennsylvania. Both candidates face challenges in the final weeks of the 2024 U.S. presidential race, with Trump’s strength rooted in economic issues, particularly in Arizona, while Harris benefits from strong support on abortion rights in Pennsylvania. Harris leads by 2.5% in national polls.
Sector Recap
Last week, Information Technology (+2.5%) and Industrials (+2.1%) led the gains, reflecting rate cut confidence. Financials (+1.8%) and Healthcare (+1.5%) also saw increases, while Materials (+1.0%) and Consumer Staples (+0.3%) showed moderate growth. Utilities (-2.6%) experienced the sharpest decline, possibly due to shifting investor sentiment about the plausibility of a recession. Other lagging sectors included Telecom (-1.4%), Energy (-0.5%), Consumer Discretionary (-0.9%), and Real Estate (-0.3%).
The Week Ahead
In the U.S., attention will be on retail sales data and Federal Reserve speeches, along with reports on industrial production, import/export prices, and housing metrics. Key earnings from companies like UnitedHealth, Johnson & Johnson, and Netflix are expected. In Europe, focus shifts to the ECB’s rate decision and economic data from Germany. The UK will release unemployment, inflation, and retail sales reports. China will unveil its Q3 GDP growth and other key economic indicators.
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Gasoline
+7% (1W Chg)
-2.67% (YoY Chg)
Crude Oil
+3.85% (1M Chg)
+28.82% (YoY Chg)
Cocoa
+9.83% (1W Chg)
+2.85% (1M Chg)
Silver
+1.12% (1D Chg)
+5.38% (1M Chg)
Company News
LevelFields AI Alert Highlights This Week
This week, LevelFields alerts delivered impressive returns. BNZI's mass layoffs that are expected to cut staffing expenses by 27% spurred a 82% gain in one day. CRNC announced a new CEO, driving a 42% gain in a single day. USAS also announced a new CEO, resulting in a 22.03% daily gain. MDU was added to the S&P Small Cap 600, leading to a 5.46% weekly return.
Bank Stocks Rise on Positive Earnings
U.S. bank stocks surged to their highest levels since before the Silicon Valley Bank collapse, fueled by better-than-expected earnings from JPMorgan Chase and Wells Fargo. The strong performance supports hopes for an economic "soft landing," as consumers remain resilient despite rising interest rates. However, future pressure on bank profits is anticipated due to expected declines in net interest income.
JPMorgan and Wells Fargo both reported declines in third-quarter profits compared to the previous year, with drops of 2% and 11%, respectively. However, these falls were smaller than expected, and both banks saw significant growth in investment banking fees, which helped to offset the overall decline.
Arcadium Lithium Jumps on Rio Tinto Buyout
Following our earlier reports of a possible buyout, Rio Tinto announced a $6.7 billion all-cash deal to acquire Arcadium Lithium at $5.85 per share, expanding its access to lithium, a crucial component for electric vehicle batteries. The deal, pending shareholder approval, caused Arcadium’s stock to surge 31%. This acquisition aligns with Rio Tinto’s growth strategy amid declining lithium prices.
Robot Wars: Tesla's Huge Event Leads to Huge Declines
Tesla shares fell 8.8% after its highly anticipated robotaxi event disappointed investors. The event, focused more on entertainment than financial details, resulted in a $67 billion loss in market value, erasing more than the total worth of General Motors or Ford. This comes despite the fact that General Motors’ self-driving company Cruise and Uber Technologies recently inked a partnership. Competition from Baidu and Alphabet is also a threat. Baidu self-driving cabs are already operating commercially in China. Alphabet's Waymo stated they are doing more than 100,000 self-driving cab rides a week.
Investors had expected more substantial business information from Elon Musk after months of buildup. While the vision was clear and included impressive demonstrations and dancing robots, the roadmap to get there was not so clear. Tesla stock fell over 12% to end the week and some analysts worry there's more pain to come.
Short Selling Hedge Fund Hindenburg Research Targets Roblox
Hindenburg Research revealed a short position in Roblox, alleging the company inflated user metrics by including bots and alternate accounts. The report also labeled Roblox as a "pedophile hellscape," exposing children to inappropriate content and grooming. Roblox's stock dropped 9.2% following the report. Roblox denied the accusations, calling the claims misleading. Hindenburg also suggested that engagement hours were overstated by potentially over 100%.
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Upcoming Earnings:
Tuesday: Bank of America (BAC), Citigroup (C), Goldman Sachs (GS), State Street (STT), United Health Group (UNH), Walgreens Boots Alliance (WBA), United Airlines (UAL)
Wednesday: Morgan Stanley (MS), U.S Bancorp (USB), Steel Dynamics (STLD)
Thursday: Blackstone (BX), Netflix (NFLX), Bank OZK (OZK)
Friday: Comerica (CMA), Procter & Gamble (PG)