Opening Market Update

Published as of: October 9, 2024, 9:06 a.m. ET

(Wednesday market open) Wall Street wavered early Wednesday after yesterday's hearty rebound, with investors monitoring weakness in China and bracing for U.S. inflation data due in less than 24 hours.

Thursday's September Consumer Price Index (CPI) report overshadows almost everything else in coming days and could limit moves on Wall Street as participants position for the data. It's expected to be benign, but market participants might shrug off constructive September readings because energy prices spiked in early October and won't be reflected.

Market events could be eclipsed to some extent as Hurricane Milton closes in on Florida today. Aside from the possible human toll, major economic disruptions from the hurricane could affect airlines, trucking firms, theme parks, and other businesses. Insurance company stocks have faced pressure, too.

In China, markets suffered their worst day in four years on disappointment that Beijing didn't announce new efforts to stimulate the slow economy. That's one reason crude might be under pressure today following its rally last week. Soft crude played a large role in yesterday's U.S. rally as investors scanned media reports of a possible ceasefire in Lebanon.

A U.S. Treasury 10-year note auction scheduled later today keeps fixed income center stage, with yields easing a bit this morning but still just under Monday's two-month highs. The Treasury yield surge after last Friday's jobs data partly reflects U.S. economic strength, but there's an undercurrent of inflation fear too. 

"As long as Treasury yields' moves remain more connected to the economic growth trajectory, and not the inflation trajectory, yields and stocks can remain positively correlated … however, the breach of 4% by the 10-year caused some indigestion" in equities on Monday, said Liz Ann Sonders, chief investment strategist at Schwab, referring to yield on the benchmark U.S. 10-year Treasury note (TNX).

In premarket trading, futures based on the S&P 500^® index (SPX) were flat, and the Nasdaq-100^® (NDX) fell 0.1%. Futures based on the Dow Jones Industrial Average^® ($DJI) were basically unchanged.

• The 10-year U.S. Treasury yield steadied at 4.03%.
• The U.S. Dollar Index ($DXY) hit a nearly two-month high of 102.73.
• The Cboe Volatility Index^® (VIX) remained elevated but steady at 21.43.
• WTI Crude Oil (/CL) is flat at $73.56 per barrel but down sharply from recent highs.
• Bitcoin (BTC) slipped 0.3% to $61,985.

Here are expectations for the September CPI report, due at 8:30 a.m. ET Thursday, according to Trading Economics:

• Headline monthly CPI: 0.1%, versus 0.2% in August.
• Core monthly CPI: 0.2%, versus 0.3% in August.
• Headline annual CPI: 2.3%, versus 2.5% in August.
• Core annual CPI: 3.2%, versus 3.2% in August.

Core excludes volatile food and energy prices.

The September Producer Price Index (PPI) comes out at the same time on Friday morning and isn't typically watched as closely as CPI. However, PPI, which tracks prices producers pay for goods, can eventually spill into CPI as producers pass along price increases to their customers. Monthly PPI consensus looks mild at 0.1% for headline and 0.2% for core, Trading Economics said.

Tomorrow morning also features weekly U.S. initial jobless claims, which have been trending lower for months. Consensus is 230,000, basically near the average of recent weeks, according to Trading Economics, and up slightly from 225,000 a week earlier. Continuing claims of 1.83 million, the consensus view, is also near the longer-term average.

This afternoon's release of minutes from the last Federal Open Market Committee (FOMC) meeting could generate more attention than usual because they'll indicate the exact course of discussion that preceded the Fed's "jumbo" 50-basis point rate cut.

Another five Fed speakers opine today, and investors might want to monitor their comments for thoughts on last week's blockbuster September jobs report. So far, the jobs data hasn't seemed to change minds at the Fed about needing to support the labor market.

Strong economic data like the jobs report appeared to take pressure off the Fed for dramatic rate cuts, and yesterday's updated Atlanta Fed's GDPNow forecast reinforced that, coming in at 3.2%. That's up from the previous estimate of 2.5% and from a seasonally adjusted annual rate of 3% in the second quarter.

Markets in China took a direct hit early Wednesday from disappointment over lack of fresh stimulus. A press briefing Tuesday didn't deliver on hopes of a fiscal jolt to the country's moribund consumer economy, and stocks in Shanghai plunged nearly 7% today. Now there's a news conference scheduled Saturday on possible stimulus, Reuters reported, so stay tuned. Chinese stocks had been on a roll following stimulus announced last month, but the monetary moves aren't expected to directly help struggling consumers.

U.S. housing data this morning suggest buyers aren't scrambling to visit open houses after 30-year fixed-rate mortgages reached their highest level since August at 6.36%. The weekly MBA Mortgage Applications Index dropped 5.1% from a week earlier. The next important set of U.S. housing data are due late next week.

Three of the largest U.S. banks unofficially kick off third quarter earnings season early Friday, and about 50% of all earnings data this week and next will be from the S&P financial sector. But Delta Airlines (DAL) is number one on the runway tomorrow morning. Major airlines likely had a strong third quarter with crude prices falling and air fares rising. Delta shares have enjoyed the flight so far this year, up about 25%. Still, they trade well below their spring peaks along with most of the industry.

Beyond earnings, stay tuned for tomorrow's Tesla (TSLA) Robotaxi event, where plans for the vehicle will be shared. Previous Tesla events have often caused shares to move firmly one direction or the other, Barron's reported. Another meeting to monitor this week is Advanced Micro Devices' (AMD) "Advancing AI 2024" event scheduled Thursday.

Another company drawing headlines today is Alphabet (GOOGL). The U.S. Justice Department may try asking a judge to force the company's Google unit to divest parts of its business, saying they're part of an illegal monopoly in online search, Reuters reported. Alphabet shares fell nearly 1% ahead of the open.

Energy shares couldn't keep up with the rally yesterday and may struggle again today following news that U.S. crude inventories rose nearly 11 million barrels last week, according to the weekly American Petroleum Institute (API) report.

Stocks on the move:

• Nvidia (NVDA) posted 0.8% gains in pre-market trading following yesterday's 4% surge that helped semiconductor shares lead the charge. Other major chip stocks were mixed ahead of the open, but the market is still buzzing over recent reports from two AI server makers of booming demand for Nvidia's AI chips.
• Boeing (BA) dropped 1.75% ahead of the open after it withdrew its contract offer following talks with its union ending without a deal to end a strike.
• Home Depot (HD) and Lowe's (LOW) each rose 1% in pre-market trading after both received upgrades from Loop Capital to buy from hold. The analyst said recent store checks indicate the home improvement retail business has bottomed, though hurricanes might disrupt this quarter's business.

Talking technicals: The small-cap Russell 2000® (RUT) trailed major large-cap indexes Tuesday but remains in an uptrend on the thesis that investors are rotating out of tech and into smaller stocks. "I believe the RUT needs to clear the July highs to validate that thesis," said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. Those highs were just above 2,260.

Tuesday in review: Falling oil prices got stocks humming again Tuesday in a rebound from Monday's crude- and yield-driven sell off. The SPX added nearly 1%, approaching its all-time high on hopes weaker crude oil might ease costs and spark economic gains. Nvidia, the biggest AI chip maker and a member of the Magnificent Seven, swings weight on Wall Street thanks to its massive market cap. Shares climbed recently on several reports of rising demand for its chips.

Leading sectors Tuesday included info tech, consumer discretionary, and communication services, all on the growth side of the equation. More defensive sectors like utilities and staples held their own but have wilted thanks to rising Treasury yields that compete with dividends for income seekers.

China check: New stimulus from Beijing last month sparked a rally, but the question is whether China is investable over the long term. Schwab's chief global investment strategist Jeffrey Kleintop took a close look at China's markets, economy, and policies in his latest analysis.

Early today, futures traders built in an 87% chance rates will fall 25 basis points at the FOMC meeting on November 6–7, based on the CME FedWatch Tool. There's a 13% chance of no cut at that meeting.

Ideas to mull as you trade or invest

Three for three: October marks the third straight month to stumble out of the starting gate, though yesterday's rally cleared out most of the damage. Both August and September got off on the wrong foot thanks in part to worries about the U.S. economy. October is different, and the concerns are more complex. While recession fears have retreated, recent robust U.S. data might threaten the anticipated lower rate path, just as it did earlier this year. Another headwind is Treasury yields, now well above their month-ago levels and typically a barrier to buying interest. The dollar also has new strength, which might lessen hopes of strong overseas sales helping U.S. multinational firms. Worries that investors wouldn't "buy the dip" as they did in August and September faded a bit yesterday, but volatility remains elevated, a sign that participants are nervous.

Earnings ahoy! That's the bad news for Wall Street. On the plus side, third quarter earnings season gets underway this week and might bring hope for signs of renewed corporate growth. That's especially true on the semiconductor side, where Micron's (MU) earnings late last month saw demand climb broadly across categories. This week and last put Nvidia on the front page thanks to signs of roaring demand for its new Blackwell AI chips. And while analysts expect the financials sector to show flat to lower earnings growth, big banks often deliver positive surprises when they're not expected. Lower rates, after all, could spark new consumer and corporate demand for banking services. Earnings season also puts the microscope firmly back on corporate results, a welcomed break after so much focus on geopolitics and rates the last month.

21 Club: Card players will likely appreciate the current lineup on Wall Street with a 21 forward price-to-earnings (P/E) ratio for the S&P 500, 21% year-to-date gains for the S&P 500, and a VIX near 21. The relatively high valuation on a historic basis accompanied by so much strength this year and rising volatility could set the market up for pressure from downside hedging. Also, recent breadth in the markets points toward potential consolidation, as do the Relative Strength Index (RSI) and the Average Directional Index (ADX). The ADX can indicate whether a trend is in place and how strong that trend may be. The RSI can show whether the current price may be overbought or oversold and whether it's time to enter the trend or wait.

October 10: September CPI and core CPI, and expected earnings from Delta Airlines (DAL) and Domino's Pizza (DPZ).

October 11: September PPI and core PPI, Michigan Consumer Sentiment and earnings from JPMorgan Chase (JPM), Wells Fargo (WFC), Blackrock (BLK), Bank of New York Mellon (BK), and Fastenal (FAST).

October 14: No major economic earnings or data scheduled.

October 15: Expected earnings from Bank of America (BAC), Citigroup (C), Goldman Sachs (GS), Johnson & Johnson (JNJ), PNC (PNC), UnitedHealth (UNH), Walgreens Boots Alliance (WBA), J.B. Hunt (JBHT), and United Airlines (UAL).

October 16: Expected earnings from Abbott Labs (ABT), Morgan Stanley (MS), U.S. Bancorp (USB), Alcoa (AA), and CSX (CSX).