September CPI and US Jobs report
September’s Consumer Price Index (CPI) report brought both relief and caution. The good news was that rent prices had finally started to cool off more quickly(1). However, persistent inflation in key services and stalled progress in core goods tempered the positive news(1). The headline CPI rose by 0.2%, with shelter and food prices contributing over 75% of the total monthly rise(1). Meanwhile, core CPI, which strips out food and energy, climbed by 0.3% for the second straight month(1). On an annual basis, headline CPI increased by 2.4%, marking its slowest growth since February 2021, while core CPI rose by 3.3%(1). The report probably won’t alter the Federal Reserve’s view that inflation is on a downtrend trajectory, and the committee is expected to cut rates by 25 basis points at the November meeting(2).
After previous signs of cooling, the labor market improved in September, as the US jobs report showed unexpected strength. The unemployment rate fell to 4.1% from 4.2%, while 254K jobs were added across the economy, significantly higher than August’s jobs report(3). Additionally, both July and August jobs reports were revised up by a combined 72K, reinforcing the positive trend in job growth(3). Looking ahead, jobless claims are expected to remain elevated during the week ending Oct. 12, due to Hurricane Milton and the Boeing workers’ strike, which could negatively impact October’s numbers(4).
Chinese Stocks
Chinese stocks have surged since September 24, after the central bank unveiled its largest stimulus since the pandemic, including cutting borrowing costs to support the struggling property market(5). These efforts, along with moves to improve market liquidity, sparked rallies in local stock markets as well as broader emerging market indices and boosted China-exposed stocks like European luxury brands(6). The momentum faded on October 9, as Chinese stocks plunged, and the CSI 300 dropped 7.1%(6). A press conference by the Chinese Finance Ministry provided few details on stimulus plans, increasing uncertainty and underscoring the risks of relying on such measures for investment growth(7).
Bottom line
In the coming weeks, investors’ attention may turn to third-quarter earnings, and recent headlines over geopolitical risks, the upcoming election, and future Federal Reserve policy may take a bit of a backseat, at least for a bit. The strength of the upcoming earnings season may influence market sentiment in the short run, particularly given the divergence between company outlooks and analyst forecasts(8). Analysts expect S&P 500 companies to report a 4.2% increase in third-quarter earnings compared to the same period last year and have cut their forecasts since July, but company guidance remains more optimistic(8). The “Magnificent Seven” stocks will be in the spotlight, having fueled much of the market rally this year. Despite recent underperformance, their earnings are expected to grow by 18%, significantly above the expected results across the S&P 500(8).
(1) Source: Bureau of Labor Statistics, https://www.bls.gov/news.release/cpi.nr0.htm
(2) Source: CME Fed Watch Tool, as of October 15, 2024, https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
(3) Source: Bureau of Labor Statistics, https://www.bls.gov/news.release/empsit.nr0.htm
(4) Source: Bloomberg News, https://www.bloomberg.com/news/articles/2024-10-14/waller-says-fed-should-cut-with-caution-at-deliberate-pace
(5) Source: Reuters, https://www.reuters.com/world/china/china-unveils-broad-stimulus-measures-revive-economy-2024-09-24/
(6) Source: Morningstar, https://www.morningstar.com/markets/chinese-stocks-rally-then-plungewhat-happens-next
(7) Source: Bloomberg News, https://www.bloomberg.com/news/articles/2024-10-13/china-puts-investor-patience-to-test-as-key-meeting-underwhelms
(8) Source: Bloomberg News, https://www.bloomberg.com/news/articles/2024-10-14/ceos-and-analysts-are-at-odds-about-s-p-500-s-earnings-outlook
