The stock market has a chance to recover in October, as the macroeconomic background may be moving closer to the Fed's liking and Q323 corporate earnings beat expectations. Another pause in tightening at the October31-November 1 FOMC Meeting can't be ruled out at this point.
Friday's release of August Personal Income/Consumption/PCE Deflator had good news for the Fed. It contained ingredients for a slowdown in Consumer Spending -- a slower trend in Disposable Income and low Saving Rate -- and evidence that core inflation is trending down to below the Fed's 2% target. This week's key US economic data are expected to point to slower economic growth, as well, although the evidence is not entirely supportive of consensus estimates.
Consensus looks for the Mfg ISM to edge up to 47.9 in September from 47.6 in August. But, the evidence is mixed. Although the Markit Mfg PMI rose in early September, the Phil Fed Mfg Index and Chicago PM fell. The latter two have tracked Mfg ISM better than Markit Mfg in the past couple of months. A near-consensus or below-consensus print would be consistent with slow growth. A decline should not hurt stocks much if the Index stays above the 46.0-46.9 range seen in May-July. Hard data on manufacturing were not recessionary during this earlier period.
Consensus looks for mixed evidence regarding an easing in labor market conditions. It sees a slowdown in Nonfarm Payrolls to +158k in September from +187k in August. And it sees the JOLTS data showing a decline in Job Openings in August. To be sure, the Claims data lean toward a speedup in Payrolls. But, the m/m change in Claims is small, as it was in August when it missed Payroll's speedup. So, it has to be viewed with caution.
In contrast to slower job growth, consensus expects the Unemployment Rate to slip to 3.7% from 3.8%. An important question regarding the Unemployment Rate is whether the Labor Force Participation Rate stays high or moves up further. The latter would be especially good news, as it would imply more room for non-inflationary growth in the economy. Consensus sees +0.3% m/m for Average Hourly Earnings (AHE). Even though this would be up from 0.2% in August, it would be below the recent 0.4% trend. There is no evidence on either the Unemployment Rate or AHE.
Consensus expects S&P 500 corporate earnings to slip a bit on a y/y basis in Q323. This would be an improvement from the large declines seen in the prior 3 quarters. Macroeconomic evidence is mixed, but on balance does not rule out an improvement in corporate earnings from Q222. The biggest positive is the strength of US economic growth. There is also help from a smaller y/y decline in oil prices, a weaker dollar (thanks to base effects) making earnings abroad more valuable in dollar terms, and a smaller y/y weakening in economic activity abroad compared to Q223. But, profit margins may have been squeezed, as the Core CPI slowed by more than AHE.
Markit
Eurozone Real GDP Oil Prices Trade-Weighted
Dollar AHE Core CPI PMI
[ y/y percent
change ] (level)
No comments:
Post a Comment