Navigating the Shifting Tides: A Comprehensive Market Recap and Outlook

The past week has been a turbulent one for markets, marked by rising tensions in the Middle East and a port strike that both started and stopped. However, the week was capped off by a better-than-expected September jobs report, which helped stocks close marginally up on the week. As investors look ahead, they will be closely watching for updates on inflation and the start of third-quarter earnings reports.

Weathering the Storm: A Resilient Market Navigates Challenges

A Rollercoaster Ride: Navigating Market Volatility

The past week has been a tumultuous one for the markets, with a range of factors contributing to the turbulence. Tensions in the Middle East and a port strike that both started and stopped have created a sense of uncertainty, leading to fluctuations in stock prices. Despite these challenges, the markets have shown resilience, with the S&P 500 (^GSPC) rising 0.2% and the Nasdaq Composite (^IXIC) and Dow Jones Industrial Average (^DJI) each rising about 0.1% for the first week of October.As investors look ahead, they will be closely monitoring the upcoming economic data and corporate earnings reports. The October Consumer Price Index (CPI) report, which will provide an update on inflation, and the release of the minutes from the Federal Reserve's September meeting, will be closely watched. Additionally, the start of third-quarter earnings season, with major financial institutions such as JPMorgan (JPM), Wells Fargo (WFC), and BlackRock (BLK) reporting, will be a key focus for investors.

A Glimmer of Hope: The September Jobs Report

The September jobs report provided a glimmer of hope, as it cooled concerns that the labor market is rapidly deteriorating and will prompt another jumbo-sized rate cut from the Federal Reserve. The data from the Bureau of Labor Statistics showed that the labor market added 254,000 payrolls in September, more than the 150,000 expected by economists. Revisions to the July and August reports also showed that the US economy added 72,000 more jobs during those two months than previously reported.This positive news has led Wall Street economists and strategists to argue that it is more likely that the Federal Reserve will move in 25 basis point (bps) cut increments, rather than a half-percentage-point interest rate cut in November. BlackRock's chief investment officer of global fixed income, Rick Rieder, noted that "for a Fed that is recalibrating to an economy that is operating at a very solid level, it seems more appropriate for the market to price in a small probability of 'no cut' at the next meeting, rather than a small probability of a 50-bps cut."

Inflation Remains a Concern

While the labor market data may have eased concerns about the Federal Reserve's maximum employment mandate, inflation remains above the central bank's 2% target. The upcoming week will provide a fresh update on how quickly price increases are falling toward that goal.Wall Street economists expect headline inflation to have risen 2.3% annually in September, a slowdown from the 2.5% rise seen in August. On a "core" basis, which strips out food and energy prices, CPI is forecast to have risen 3.2% over last year in September, unchanged from August.Bank of America US economist Stephen Juneau noted that "inflation continues to move in the right direction, which will allow further cuts." However, he also emphasized that "labor data matters more for size of cuts," suggesting that the Federal Reserve will be closely monitoring the employment situation as it considers future policy decisions.

Tesla's Robotaxi Event: A Vision for the Future

Tesla will once again be a key focus for investors in the upcoming week, as the electric vehicle maker is expected to host its highly anticipated robotaxi event on October 10. The event is expected to provide further details on Tesla's plans for its full self-driving project, with Morgan Stanley analyst Adam Jonas anticipating that attendees will be shown and given rides in one of Tesla's "cybercabs."While the event is likely to showcase Tesla's vision for the future of autonomous vehicles, RBC analyst Tom Narayan cautioned that it is unlikely to send Tesla stock soaring. He noted that "it's difficult to get excited on a stock on something so high level," and that the launch will probably take several years to become "financially meaningful" for the EV maker.Tesla's stock fell about 5% last week ahead of the event, as the company announced third-quarter deliveries that fell short of Wall Street's estimates. Investors will be closely watching to see how the market reacts to the robotaxi event and any updates on the company's progress in the autonomous driving space.

Earnings Season Begins: A Subdued Quarter Ahead?

As the third-quarter earnings season kicks off, Wall Street is expecting a subdued quarter for year-over-year earnings growth. Consensus projections indicate that earnings will grow 4.7%, marking the fifth straight quarter of growth compared to the same period a year prior, but also the slowest year-over-year growth since the fourth quarter of 2023.Deutsche Bank's chief equity strategist, Binky Chadha, noted that this should set up company earnings to surpass Wall Street's expectations, as they often do. However, he cautioned that the strong rally and above-average positioning going into the reporting period could lead to a muted market reaction.Bank of America's US and Canada equity strategist, Ohsung Kwon, highlighted that with consensus not expecting a strong third quarter, much of the focus will be on what companies say about the path forward. "Now that the easing cycle has started, what are companies … going to say about any early indications of improvement given the lower rate environment?" Kwon said.As investors navigate the upcoming earnings season, they will be closely watching for any insights into the broader economic outlook and the potential impact of the Federal Reserve's policy decisions on corporate performance.