Welcome to Market Movers Weekly. This week, U.S. stock markets surged, driven by strong earnings from major banks and rising investor confidence. The S&P 500 rose 0.6% to a record high, while the Dow Jones climbed 409 points (1%), marking a five-week winning streak for both indices. In contrast, the Nasdaq gained only 0.3%, weighed down by an 8.8% drop in Tesla’s stock after its robotaxi unveiling lacked rollout details. Meanwhile, Uber and Lyft saw increased investor interest following Tesla’s announcements.
Big banks drove much of the gains, with JPMorgan Chase and Wells Fargo reporting earnings that exceeded expectations, easing fears of a consumer spending slowdown. JPMorgan’s stock jumped 4.4% on higher investment banking revenue, while BlackRock rose 3.6% on strong financials.
International markets faced turbulence as South Korea cut interest rates amid economic concerns, and China’s stocks dropped sharply ahead of anticipated stimulus measures. The bond market delivered mixed results, with Treasury yields rising slightly. Flat growth in the producer price index pointed to easing inflation pressures, prompting traders to adjust expectations for a modest 25 basis point Fed rate cut.
Technology stocks also stood out, with NVIDIA’s AI-focused chips selling out for months, reflecting strong demand. However, broader tech struggled, especially due to Tesla’s challenges.
Looking ahead, key data like September’s retail sales and earnings from companies such as Netflix and Goldman Sachs will offer insights into economic resilience and market trends, helping to determine whether current market highs are sustainable.
S&P 500 Soars to New Highs, But Weak Market Breadth Sparks Worries
The S&P 500 hit record highs on Wednesday, but strategists caution that the rally may not be as strong as it appears. Chris Verrone, head of technical and macro research at Strategas, highlighted that only 16% of stocks in the index reached 20-day highs at the same time, indicating a lack of market breadth. This limited participation suggests the index could be vulnerable to a correction, despite the overall positive trend.
“The primary trend is solid,” Verrone said, “but a weak new high list can make the market prone to a pullback.”
Despite these concerns, Wednesday’s all-time high marked the S&P 500’s 44th record close in 2024. The index has gained over 21% year-to-date, positioning it for one of its best years. However, market strategists anticipate a possible pullback, with the average year-end target pointing to a 3% decline from current levels.
Inflation Cools Down, Fueling Higher Expectations for Fed Rate Cuts
Investors concerned about persistent inflation got some relief on Friday as wholesale prices for September remained unchanged, coming in below expectations. The producer price index (PPI) report helped calm worries sparked by Thursday's slightly higher-than-expected consumer price index (CPI) data.
David Seif, chief economist for developed markets at Nomura Securities, mentioned on Squawk Box that the Federal Reserve’s preferred inflation gauge—core PCE—still looks positive based on recent data. "The components of the CPI and PPI reports that feed into core PCE actually look pretty good," Seif explained. Investors will closely monitor the personal consumption expenditures (PCE) price index, set for release on October 31, for further insights.
Following the PPI report, traders grew more confident in the Federal Reserve's direction toward rate cuts. The CME FedWatch tool now indicates an 88% implied probability of a 0.25% rate cut in the November meeting, up from 83% on Thursday.
Additionally, a strong start to the third-quarter earnings season, with JPMorgan Chase, Wells Fargo, and BNY Mellon all-surpassing estimates, further lifted investor sentiment.
Netflix Set for More Gains as Q3 Earnings Approach
With Netflix set to report its third-quarter earnings next Thursday, analysts are optimistic about further upside potential. Despite the stock already surging nearly 50% in 2024, UBS analyst John Hodulik maintains a buy rating with a price target of $750, implying more than 2% upside from Thursday’s close. Hodulik expects solid subscriber growth, even if year-over-year growth slows, and points to the potential boost from upcoming releases like Squid Game 2 and NFL games.
Other analysts are equally bullish. Morgan Stanley raised its price target to $820, projecting a 12% gain, while Oppenheimer set a $775 target, indicating over 6% upside. Both firms see significant revenue growth opportunities, with Morgan Stanley predicting at least 13% revenue growth by 2025. Oppenheimer also anticipates Netflix announcing price hikes for its standard and premium plans in markets outside key regions.
As Netflix continues to lead the streaming industry, 33 of 48 Wall Street analysts rate the stock as a buy or strong buy. However, the average price target of $708.75 suggests a modest 3% downside. Strong quarterly results could still drive the stock higher.
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