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A stronger-than-expected jobs report ensured the equity markets tumbled last Friday, which meant the Federal Reserve would continue to maintain a hawkish stance with a focus on quantitative tightening. However, major indices ended the week in the green after they experienced a strong rally in the first two days of the last week.
In the week ended on October 7, the Dow Jones Industrial Average Index surged by 2%, while the S&P 500 and Nasdaq Composite index gained 1.5% and 0.75%, respectively.
The 10-year Treasury yield rates stood at 3.9% while oil prices rallied after the OPEC+ disclosed they would cut oil production by two million barrels each day to support higher prices. It is the largest supply cut since early 2020. It led to a 15% hike in prices of the West Texas Intermediate (WTI) crude, the largest weekly gain in more than 6%, closing the week at $93 per barrel.
As we head into Q4 of 2022, all eyes will be on corporate earnings for the quarter that ended in September. Let's see what stock market investors should expect in the upcoming week.
Big Banks to report earnings
The upcoming week will see big banks, including JPMorgan Chase (NYSE: JPM), Wells Fargo (NYSE: WFC), Morgan Stanley (NYSE: MS), and Citigroup (NYSE: C), release Q3 earnings this week, while Bank of America (NYSE: BAC) and Goldman Sachs (NYSE: GS) will report earnings in the following week.
The financial sector will provide Wall Street analysts and investors a peek into the health of the economy as it is sensitive to changes in interest rates and macroeconomic conditions.
In a period of rising interest rate hikes, banks and financial institutions benefit from widening profit margins due to rising interest income. But, it will result in lower demand for loans across verticals due to the higher cost of debt for individuals, households, and corporates.
A FactSet report projects financial sector earnings to fall by 13.5% year over year due to refinancing demand for mortgages and a slowdown in investment banking activity. The financial sector is down 18% in 2022, compared to the 23% decline of the S&P 500.
Will inflation cool down?
The Bureau of Labor Statistics (BLS) will report the PPI (producer price index) for September on Wednesday. The PPI tracks inflation from the viewpoint of goods-producing businesses. Economists expect producer prices to rise by 0.2% in September after it fell in the two prior months.
Further, producer price inflation has slowed significantly and decelerated to 8.7% in August, compared to a 40-year high of 11.7% in March. Core prices, which exclude food and energy, rose 0.3% on the month or 7.1% year over year after it gained 0.4% in August.
Additionally, the consumer price index (CPI) for September will be released on Thursday and is forecast to rise 0.2%, compared to a 0.1% gain in August. On a year-over-year basis, CPI inflation might moderate to 8.1% from 8.3% in August. Finally, core inflation is estimated to accelerate to 6.5% annually from 6.3% in August.
Retail sales for September
The U.S. Census Bureau will release its report for retail sales in September on Friday, which is an indicator of consumer spending. Retail sales are projected to rise 0.2% sequentially compared to 0.3% in August and a fall of 0.4% decline in July.
Retail sales growth slowed down in July to 0.4% after peaking at 2.7% in January. A stronger-than-expected retail sales might also support the Fed’s case for interest rate hikes.
Related: October Optimism Continues but Cost-of-Living Problems Still Linger