Stocks Close the Week Higher, Bonds Hold Steady on Mixed Earnings and Inflation Outlook

Traders work on the floor of the New York Stock Exchange on Aug. 7, 2024. Richard Drew/AP Photo

U.S. stocks and bonds ended up for the week but mixed performance of earnings reports and robust U.S. economic data led traders and investors to be wary of the direction of corporate earnings for the rest of the reporting season and the Fed’s next interest rate move in December.

The S&P 500 ended Friday at 5,864.67, up 0.85 percent for the week; the Dow Jones at 43,275.91, up 0.96 percent; the tech-heavy Nasdaq at 18,489.55, up 0.8 percent; and the small-cap Russell 2000 at 2,276.09, up 1.87 percent.

Meanwhile, bond prices remained steady. The benchmark 10-year U.S. Treasury bond ended the week with a yield of 4.08 percent, virtually unchanged from the beginning of the week.

However, both equity and bond markets saw significant volatility during the week. For instance, on Oct. 15, Citigroup reversed early gains in the week on a strong earnings report as investors focused on rising loss allowances for its credit card division. It cooled off the momentum for equities as they continued their winning streak from the previous weeks toward all-time highs.

On Oct. 15, the tech-heavy Nasdaq reversed early morning gains to close lower following a disappointing earnings and bookings report from the European semiconductor equipment maker ASML.

Then, on Oct. 17, techs reversed course following a strong earnings report from Taiwan Semiconductor Manufacturing Company.

Still, market gains in the tech sector moderated and mitigated by losses in interest rate-sensitive sectors on strong U.S. economic data. A strong labor market report showed that U.S. unemployment claims declined by 19,000 in the week ending Oct. 12. This is the largest decline in three years, after claims jumped the week prior to more than a one-year high.

The total number of claims fell to 241,000, coming in well below Wall Street’s expectations of 260,000, suggesting that the U.S. labor market remains healthy.

Then, another economic report, U.S. retail sales, a barometer for consumer spending, was released. They climbed by 0.4 percent in September, well above a 0.1 percent gain in August and ahead of market expectations of a 0.3 percent rise. Core retail sales fared even better, soaring 0.7 percent, with gains spread across most categories, including ongoing strength in online sales, a confirmation that consumer spending on goods remains robust.

Inflation Outlook

These strong economic reports suggest that U.S. inflation may be off its 2022 and 2023 highs, but it is still around and may come back in a strong economy to sting consumers and financial markets.

Indeed, according to a recent New York Federal Reserve survey, inflation remains a concern for U.S. consumers. Median inflation expectations remained steady at 3.0 percent at the one-year horizon, increased to 2.7 percent from 2.5 percent at the three-year horizon, and increased to 2.9 percent from 2.8 percent at the five-year horizon.

Back to Wall Street, the prospect of a more robust economy reviving inflation diminished the chances of another sizable interest rate cut by the nation’s central bank in its December meeting. As a result, bond prices dropped on Oct. 17, sending yields higher, fueling a sell-off in interest-sensitive sectors.

Still, the bond market stabilized on Oct. 18, with bond prices increasing and bond yields decreasing, fueling a turnaround in interest rate-sensitive stocks.

Meanwhile, earnings continued to pour in at the end of the week, adding to the market volatility. On the positive side, Netflix reported adding five-plus million subscribers on top of the 8.8 million it said in the previous quarters, despite price hikes for its Basic and Premium plans last year.

Revenue growth was strong across all markets, and the company’s upbeat guidance for 2025 sent its shares soaring on Wall Street up 5.5 percent at the end of the week.

On the negative side, leading consumer products producer and merchandiser P&G reported solid earnings but missed the sales mark in China, disappointing some investors who sold the stock.

Then there was American Express’s earnings report, which beat analysts’ estimates and provided strong guidance. But more was needed to please the most bullish investors, who sold the stock.

Oilfield services provider Schlumberger released a report that missed third-quarter earnings estimates, warned of a sector slowdown, and took other oil producers lower.

Still, David Materazzi, CEO of Galileo FX, an automated trading platform, was impressed by the performance of the U.S. financial markets. “This week was historic: the S&P 500 and Dow Jones both hit all-time highs, while the Nasdaq reached its highest since July,” he told The Epoch Times via email.

Cliff Ambrose, FRC founder and wealth manager at Apex Wealth, is skeptical of the equity market performance. “This week, financial markets showed mixed performance as investors navigated through ongoing economic concerns and corporate earnings reports,” he told The Epoch Times via email. “The stock market saw some volatility, with major indices fluctuating as inflation worries and interest rate uncertainty lingered.”

He is casting a wary eye on the market sentiment and global tensions.

“Despite a few upbeat earnings from tech companies, the overall market sentiment remained cautious, especially with global tensions adding to the unease,” he said.