Fed speak, tech earnings and PCE inflation will test Wall Street this week

Wall Street will navigate a light slate of headline drivers over the upcoming week, but may nevertheless face a series of risks heading into the pinnacle of the third quarter, as it looks to build on late-September gains powered in part by Federal Reserve interest-rate cuts.

The S&P five hundred, fresh off its best 5-day gain of the year heading into last week's Fed rate decision, has stretched its 2024 gain to around 20% heading into the final word three months of the year. The benchmark is supported in part by a resilient economy, rising corporate profits and a newly dovish central bank outlook.

Megacap tech stocks, of course, are accountable for the bulk of the benchmark's gains, but analysts are starting to peer a consistent rotation into value and midcap stocks. The Russell 2000 has well outpaced gains for both the S&P five hundred and the tech-focused Nasdaq over the past month.

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That rotation, tied to the Fed's longer-term rate projections, will probably be tested this week with key readings on consumer confidence, business activity and new-home sales, all of which are expected over the first three trading days.

Data from Bank of The u . s . a .'s weekly "Waft Show" report suggest investors are still hoping to in finding equity-market value. Some $33.8 billion flowed into U.S. stock funds last week, the third absolute best total of the year.

"As rate-cut bets have fluctuated the entire way through 2024, solid earnings growth and a sturdy performance from a much bigger choice of sectors have powered the S&P five hundred to new high after new high," said Bret Kenwell, U.S. investment analyst at eToro.

"As long because the economy holds up and inflation doesn’t roar back to life, lower rates and robust earnings growth can continue to drive stocks higher over the future."

Larger headline risks heading into the pinnacle of the week include the Labor Department's weekly tally of jobless claims — the final word reading before its a extremely powerful September employment report on Oct. four — as well because the discharge of the Fed's' hottest inflation gauge, the PCE price index, before trading starts on Friday.

Before the hole bell on Thursday, the Commerce Department will even publish its second revision of second-quarter GDP growth, which turned into last pegged at Three%.

Micron and Costco earnings on deck

On the earnings front, chipmaker Micron Technology (MU) will publish its fiscal- fourth-quarter report after the close of trading Wednesday. That unlock is anticipated to expose key developments in memory chip pricing as well as a broader sense of the AI investment theme heading into the final word months of the year and beyond.

Citigroup analysts suggest around Eighty% of Micron investors are bearish heading into the report, adding that "buyside expectations for November quarter guidance are in line or just below our revised estimates of $8 billion in revenue and $1.24 in earnings per share."

Micron shares have fallen more than 37% since the group reported disappointing third-quarter earnings on June 26.

Related: Stocks set for big Fed boost after summer rate cut rethink

Warehouse discount retailer Costco (COST) , meanwhile, will post quarterly earnings after the close of trading Thursday, just weeks after it unveiled its first membership-fee make bigger in more than seven years.

Costco's outlook will probably be a essential component in figuring out the strength of consumer spending heading into the vacation period, with more details to come again with the starting place of the third-quarter earnings season in mid-October.

LSEG data suggest collective S&P five hundred profits for the three months ending in September are inclined to upward thrust 5.7% from a year earlier to a share-weighted $512.7 billion.

That percent will percent up notably over the final word months of the year, with LSEG data forecasting a 13.four% advance for collective earnings on the bluechip benchmark.

Bond markets and economic soft landing

Bond markets are also likely to be in sharp center of attention this week following a curious post-Fed-cut reaction that lifted 10-year note yields to a few.745% and a pair of-year paper north of Three.6%.

The Treasury will sell $183 billion in new coupon-bearing bonds this week, including a $sixty nine billion auction of two-year notes on Tuesday.

Every other key event this week, a beautiful technique to incorporate a few public remarks from Fed officials, will probably be an address from Chairman Jerome Powell sooner than the U.S. Treasury Market Conference in New York sooner than the start of trading on Thursday.

Last week's half-point rate cut dropped the Federal Funds Rate to between four.75% and 5%. Powell's remarks to the media following the choice suggested that while inflation pressures are inclined to continue easing into year-end, labor-market weakness is starting to develop in almost like way as to — at the very least in the meantime — potentially hobble the surprisingly resilient economy.

Related: Fed delivers on big rate cut, signals center of attention on cooling job market

Bank of The u . s . a . described the move as a "soft cut" that would per chance give a boost to bets on a soft landing, easing inflation with no recession, for the field's biggest economy. The investment firm added that the S&P five hundred rose around 10% in the first six months following similar rate reductions in 1984, 1995 and 2019.

"If all goes as planned, inflation figures will continue to moderate before settling in on the Fed’s target sometime late next year or early 2026," said Elizabeth Renter, senior economist at NerdWallet. "And optimistically with no significant economic downturn in the method."

More Economic Analysis:

• Jobs report surprise adds to case for bigger Fed interest rate cuts
• Jobs report to signal timing and size of autumn Fed interest rate cuts
• Fed rate cuts may now not guarantee a September stock market rally

Mimi Duff, managing director at GenTrust, is a bit bit more skeptical, arguing that the August volatility spike, as well as cooling in the job market, has to be closely monitored.

"We feel markets are placing too high a probability of one of many many best soft landing in the meantime," she said. ""We put a significantly better probability of a recession/slowdown over the upcoming year than the markets, and which is driving our equity underweight."

Related: Veteran fund manager sees world of pain coming for stocks