October CPI may make final interest rate case above 5%: What to know this week

The new government inflation reading and the US midterm elections are among the most anticipated events on Wall Street’s radar this week as investors continue to digest the latest Fed rate decision.

Thursday morning will bring traders to the closely watched Consumer Price Index (CPI) for October. Economists polled by Bloomberg see the headline CPI at 7.9% annually for the month, a moderation from September’s 8.2% annual increase. Core CPI, which excludes volatile food and energy components from the scale, is expected to come in at 6.5%, unchanged from 6.6% last month.

Meanwhile, stocks may also benefit from the outcome of this year’s midterm elections on Tuesday. All three major indicators closed higher on Friday but lower for the week in the wake of October employment data, a rush of lower earnings reports, and another rate hike from the Federal Reserve that came with assurances of more increases ahead.

In the five days ending Friday, the Dow Jones Industrial Average fell 1.5%, the S&P 500 fell 3.3%, and the Nasdaq Composite fell 5.7% — the worst weekly performance for a tech-heavy index since January like Apple (AAPL) and Amazon. Com (AMZN) and Alphabet (GOOGL) lost more than 10% after third-quarter financial data disappointed Wall Street.

The US economy added 261,000 jobs in October, another strong employment number seen as confirmation to policy makers that business conditions can withstand another increase in the Federal Reserve’s key interest rate to combat historic inflation. The central bank raised interest rates for the fourth time in a row by 75 basis points on Wednesday while hinting at a slower pace of long walks but a higher final interest rate.

Investors had been hoping for cues from the central bank on possible easing in monetary plans, which would act as a tailwind for major indices after they closed higher last month on expectations about pivotal policy. But Powell dismissed the notion that a turn in the Fed’s course was imminent, with inflation and wages still rising.

“Restoring price stability will likely require maintaining a restrictive policy stance for some time,” he said in prepared remarks after the policy was announced on Wednesday. “Recent inflation data came in higher than expected again.”

Federal Reserve Chairman Jerome Powell holds a press conference in Washington, US, November 2, 2022. REUTERS/Elizabeth Frantz

A wave of Wall Street strategists raised their expectations of how much the Federal Reserve will hike its key interest rate after Wednesday’s “slower but higher” message from Powell — and this week’s October CPI could confirm revised expectations, while providing investors with clues about the scale of the December increase.

Goldman Sachs was the first among the major banks in the days leading up to the November FOMC meeting to warn of a rate hike to 5% by March 2023.

TD Securities raised its final interest rate forecast from the 4.75%-5.00% range to 5.25%-5.50% and expects a 50 basis point hike at the next meeting on December 13-14. BNP Paribas expects a fifth increase of 75 basis points next month and the level of federal funds by 5.25% in the first quarter of next year.

After Friday’s jobs report, Bank of America economists revised their forecasts for an increase to 5.0-5.25% from 4.75-5.0% and said the institution expects a 0.50% increase for the month of December.

“We believe the risks to the FOMC adjusted rate path continue to the upside, and the upcoming results of CPI inflation and the November employment report will weigh heavily on the near-term trajectory of Fed policy,” said strategists led by Michael Gaben on Friday. “. note.

On Tuesday, Wall Street will turn to see which party controls the legislative branch of government and many state governor seats in what could be the first midterm elections since 2006 in which the majority party in the House and Senate — the Democrats, in this case — loses their seats. grip on control.

The elections generally brought volatility in the market in the near term but relative calm in the following three months, Abhishek Gupta and Roman Mendoza of MSCI Research wrote in a recent note.

“Focusing in the medium term, the historically broader US stock market has been, on average, reacting favorably to the ruling political party’s ability to retain its place in both houses of Congress,” they wrote. “The coup in control has created uncertainty about the ability of the president’s party to pass bills and influence regulations, resulting in increased volatility on a relative basis.”

People attend a campaign in support of US Senate Democratic candidate John Fetterman and Democratic candidate for Pennsylvania Governor Josh Shapiro, in Philadelphia, Pennsylvania, US, November 5, 2022. REUTERS/Hannah Beer

People attend a campaign in support of US Senate Democratic candidate John Fetterman and Democratic candidate for Pennsylvania Governor Josh Shapiro, in Philadelphia, Pennsylvania, US, November 5, 2022. REUTERS/Hannah Beer

On the corporate side, earnings season keeps transitioning to an end. Of the 85% of S&P 500 companies that have reported actual third-quarter results to date, 70% report earnings per share above estimates, below the 5-year average of 77% and the 10-year average of 73%, per FactSet Research. Among those whose numbers were above expectations, the average pulse was only 1.9% higher than expectations, which is sharply below the five-year average of 8.7% and the 10-year average of 6.5%.

If 1.9% was the final percentage win for the quarter, it would be the second-lowest surprising average upward earnings of companies in the index in the past nine years.

Earnings this week include Activision Blizzard (ATVI), BioNTech (BNTX), Lyft (LYFT), Walt Disney (DIS) and Rivian Automotive (RIVN).

Economic calendar

Monday: Consumer creditSeptember ($30,000 billion, $32.241 billion)

Tuesday: Small business optimism NFIBOct (expect 91.3, 92.1 over the previous month)

Wednesday: MBA Mortgage Applicationsweek ending November 4 (-0.8% over the previous week); wholesale salesMoM, Sep (0.4% expected, 0.1% over the previous month); wholesale stockmonth after month, September final (expect 0.8%, 0.8% over the previous month)

Thursday: Consumer Price IndexMoM, Oct (0.6% expected, 0.4% over the previous month); Consumer price index excluding food and energy, month after month, October (0.5% expected, 0.6% over the previous month); Consumer Price IndexYoY, Oct (7.9% expected, 8.2% over previous month); Consumer price index excluding food and energyYoY, Oct (6.5% expected, 6.6% over previous month); CPI NSAOctober (expect 298,572, 296,808 over the previous month); CPI Core Index SAOct (expect 300,094, 298,660 over the previous month); Average real earning per hours, YoY, Oct (-3.0% over the previous month); Real average weekly earningsYoY, Oct (-3.8% over the previous month); Unemployment Complaints Ratesweek ending November 5 (expect 220,000, 217,000 over the previous week); Ongoing Claimsweek ending Oct 29 (1.500 million expected, 1.485 over the previous week); monthly budget statementOct (- $95.0 billion expected, – $429.7 billion over the previous month)

Friday: Consumer Confidence at the University of MichiganNovember 1 (expect 59.5, 59.9 over the previous month); U. From Michigan Current ConditionsNovember 1 (expect 63.4, 65.6 over the previous month); U. Michigan forecastNovember 1 (expect 54.5, 56.2 over the previous month); The United States of Michigan. Inflated for a yearNovember 1 (5.1% expected, 5.0% over the previous month); The United States swells Michigan 5-10 yearsNovember 1 (2.9% expected, 2.9% over the previous month)

earnings calendar

MondayActivision Blizzard (ATVI), BioNTech (BNTX), Choice Hotels (CHH), Groupon (GRPN), Lyft (LYFT), Mosaic (MOS), Plantir Technologies (PLTR), Take-Two Interactive Software (TTWO), TripAdvisor ( short trip)

Tuesday: Affirm (AFRM), Allbirds (BIRD), AMC Entertainment (AMC), Constellation Energy (CEG), Coty (COTY), DuPont (DD), GoodRX (GDRX), Lemonade (LMD), Lordstown Motors (RIDE), Lucid Group (LCID), News Corp. (NWSA), Norwegian Cruise Line (NCLH), Novavax (NVAX), Occidental Petroleum (OXY), Planet Fitness (PLNT), Upstart (UPST), Walt Disney (DIS), Wynn Resorts (WYNN)

Wednesday: AppLovin (APP), Beyond Meat (BYND), Bumble (BMBL), Canopy Growth (CGC), Hilton Grand Vacations (HGV), iRobot (IRBT), Rivian Automotive (RIVN), Roblox (RBLX), SeaWorld Entertainment (SEAS) Starwood Property Trust (STWD), Signify Health (SGFY), Unity Software (U), Wendy’s (WEN), ZipRecruiter (ZIP)

Thursday: AstraZeneca (AZN), Brookfield Asset Management (BAM), Compass (COMP), Dillard’s (DDS), The Honest Company (HNST), LegalZoom.com (LZ), Nio (NIO), Poshmark (POSH), Ralph Lauren (RL) , Six Flags (SIX), Tapestry (TPR), Toast (TOST), Utz Brands (UTZ), Warby Parker (WRBY), WeWork (WE)

Friday: Spectrum Brands (SPB)

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter Tweet embed

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