Last Week on Wall Street – October 12th, 2024

S&P 500: +1.10% DOW: +1.17% NASDAQ: +1.12% 10-YR Yield: 4.09%

What Happened?

The S&P 500 and Dow Jones Industrial Average hit new highs this past week, fueled by strong earnings from the banking sector. Both indices posted weekly gains, with the S&P 500 and Nasdaq Composite up 1.1% and the Dow Jones up 1.2%. The rally was led by major U.S. banks like JPMorgan Chase and Wells Fargo, which reported better-than-expected earnings, reinforcing hopes for a “soft landing” for the U.S. economy, characterized by moderate inflation and sustained growth. Despite a slight rise in inflation, with the Consumer Price Index (CPI) increasing 0.2% in September and core inflation up 3.3%, signs of easing in housing cost inflation helped maintain market optimism.

However, caution persisted as Treasury yields hit two-month highs and jobless claims surged to 258,000, largely due to temporary factors like Hurricane Helene and a Boeing strike. Analysts still expect the Federal Reserve to cut rates by 25 basis points at its November meeting, though recent strong economic data has raised questions about the pace of future cuts. In sector performance, Technology (+2.4%), Industrials (+2.2%), and Financials (+1.9%) were the big winners, while rate-sensitive sectors like real estate and staples lagged. Bitcoin also rebounded, posting a 6% rise after a brief slump.

Inflation Continues Its Bumpy Decline With Mixed September Reading

The consumer price index increased a seasonally adjusted 0.2% for the month, putting the annual inflation rate at 2.4%.
Excluding food and energy, core prices rose 0.3% on the month, putting the annual rate at 3.3%.
Initial filings for unemployment benefits took an unexpected turn higher, hitting as seasonally adjusted 258,000 for the week ending Oct. 5

The key takeaway – In September, U.S. inflation eased to a three-year low, with the Consumer Price Index (CPI) rising 2.4% year-over-year, slightly above the expected 2.3%. Core inflation, excluding food and energy, increased 3.3%, also higher than forecasts. While inflation is cooling, the process has been slower than anticipated, causing stocks to fall slightly. Energy prices declined, but costs for items like apparel, car insurance, and airfares increased. Analysts remain cautious as inflation continues to follow an uneven path. The Federal Reserve is expected to consider more rate cuts, with two meetings remaining this year.

US Jobless Claims Hit 258,000, The Most In A Year

Unemployment claims spiked to 258,000 in early October, the highest in over a year, primarily driven by Hurricane Helene and the Boeing strike.
Analysts attribute the increase in claims to these temporary factors, expecting the Federal Reserve to view them as short-term impacts and continue with plans to cut interest rates in November.

The key takeaway – Unemployment claims in the U.S. surged to 258,000 for the week of October 3, the highest in over a year, largely driven by disruptions caused by Hurricane Helene and the Boeing machinist strike. This increase of 33,000 claims surpassed the expected 229,000. The most significant jumps were seen in states heavily impacted by the hurricane, such as Florida, North Carolina, South Carolina, and Tennessee. Despite these disruptions, analysts view the rise in claims as temporary and still expect the Federal Reserve to lower interest rates in November.

Washington state, affected by the Boeing strike, contributed a notable share of the increase in claims. Additionally, while high interest rates may have begun affecting the labor market, analysts believe the Fed remains focused on achieving a “soft landing” by reducing inflation without triggering a recession. The four-week average of jobless claims, which smooths out volatility, rose to 231,000, while the total number of Americans receiving unemployment benefits increased to 1.86 million. Meanwhile, inflation has dropped to its lowest level since February 2021, signaling progress toward the Fed’s goal of controlling inflation.

JPMorgan Calls It: The U.S. Economy Has Made a Soft Landing

JPMorgan Chase exceeded expectations in the third quarter, benefiting from higher lending profits and raised its net interest income forecast to $92.5 billion for 2024, despite a slight decline in overall profit.
Both JPMorgan and Wells Fargo highlighted robust consumer spending and confidence among large businesses, aligning with hopes of a “soft landing” for the U.S. economy, even as inflation moderates.

The key takeaway – JPMorgan Chase reported strong third-quarter earnings, suggesting a resilient U.S. economy for both consumers and big companies, raising hopes that the Federal Reserve may have achieved a “soft landing” with lower inflation and sustained growth. The bank’s profit from lending exceeded expectations, with net interest income projections for the year raised to $92.5 billion. Despite a 2% decline in profit to $12.9 billion, driven by higher credit card loan losses, revenue rose 7% to $42.6 billion. JPMorgan executives indicated that consumers continue to spend, and large businesses remain confident, aligning with the Fed’s goals.

Wells Fargo also posted better-than-expected results, though its profit fell 11% due to higher deposit funding costs. Both banks showed that consumer spending remains strong, but they noted pressures on lower-income households. While JPMorgan’s lending profits boosted its performance, both banks remain cautious, pointing to potential risks from geopolitical tensions and economic uncertainties. Despite these concerns, executives expect continued resilience, with the possibility of improved business confidence as interest rates stabilize.