Market Insights

The stock market is entering a busy time as investors prepare for AI events, plus inflation and the start of earnings season.

Here are some potentially big items this week:

• Tuesday-Wednesday: Amazon.com (AMZN) has a Prime Big Deal Days. This may focus attention on the market’s fifth biggest company before the holiday-shopping season and earnings later this month.
• Wednesday: Minutes from the last Federal Reserve meeting will provide more color on policymakers’ thinking about rate cuts. They’re due at 2 p.m. ET.
• Thursday has a triple-header of catalysts:
  • Inflation in the premarket: The September Consumer Price Index (CPI) is due at 8:30 a.m. ET. Will it confirm the recent trend toward lower prices?
  • AMD’s AI event: Advancing AI 2024 is at 12 p.m. ET, hosted by chip company Advanced Micro Devices (AMD). Traders may look for it to renew interest in a stock that rallied sharply a year ago but has been rangebound since the spring.
  • Tesla’s Robotaxis: The “We, Robot” event at the Warner Bros. Studio in California starts in the evening. It’s expected to outline the EV maker’s shift toward self-driving cars and AI.
• Friday: Earnings season begins with JPMorgan Chase (JPM) and Wells Fargo (WFC)

These events follow a strange week. On one hand, it had potentially bearish events, like Iran attacking Israel with ballistic missiles and a dockworker strike. But tensions didn’t escalate and the S&P 500 barely moved overall, rising 0.2 percent between Friday, September 27 and Friday, October 4. It was the fourth straight weekly gain.

Strong Employment

There were several positive employment reports. Most important, non-farm payrolls increased by 254,000 in September. The total exceeded forecasts by 114,000 and the two previous months were revised up by 72,000. The unemployment rate was lower than expected and wages were higher than expected. Could that help consumer spending into the holidays?

ADP’s private-sector payrolls and the government’s job openings report (“JOLTS”) also surprised to the upside.

The strong readings relieved investors worried about a potential recession. They also suggest the Fed might not need to lower rates as aggressively to support the economy.

We’re not “in a hurry to cut rates quickly,” Chairman Jerome Powell said on Monday. His colleague, Thomas Barkin, warned two days later that inflation “getting stuck is a very real risk.” He added that “pressures out there … work against us getting the final mile done” on reaching 2 percent inflation.

The 10-year Treasury note jumped to its highest in almost a month because of the strong data.

There was another little-noticed but potentially important headline from Japan. The new prime minister, Shigeru Ishiba, spoke against further interest rate hikes. That helped weaken the yen, which can support risk appetite.

Other U.S. data was mixed. Institute for Supply Management’s manufacturing index missed estimates but services beat.

Megacap Comeback?

Such an environment, with higher borrowing costs, has often favored large growth stocks. (One reason is that falling rates draw investors to non-tech sectors like real estate and utilities.)

TradeStation data suggests those same growth stocks may be starting to lead again. For example, technology has risen the most in the last month. Communications and consumer discretionary are also outperforming. Communications includes companies like Meta Platforms (META) and discretionaries encompass AMZN and TSLA.

That contrasts the price action since roughly July, when investors shifted toward value stocks, small caps and consumer staples.

Nvidia (NVDA) CEO Jensen Huang also told CNBC that demand for his new Blackwell chips was “insane.” He said the industry is at “the beginning of the next wave of AI, the biggest wave of AI” as companies use models to become more productive.

Huang’s comments follow META’s augmented reality event in September. Combined with presentations by AMD and TSLA this week and earnings over the next month, could traders look for growth stocks to return to favor?

Chart watchers may notice that the Nasdaq-100 stayed above a weekly close from August, potentially turning old resistance into new support. It additionally held the rising 21-day exponential moving average. With the tech-heavy index still 3 percent below its summer peaks, could it play catchup with the S&P 500?

Energy Jumps

Energy stocks were the best-performing sector last week, rallying 6.9 percent as tensions in the Middle East lifted crude oil. It was their biggest gain in almost two years. Financials and utilities also climbed.

Chinese stocks continued their rally after officials in Beijing announced stimulus.

Consumer staples and materials led to the downside as interest rates and the U.S. dollar advanced. Homebuilders fell as mortgage rates rose.

Humana (HUM) had its biggest drop since the pandemic after the government said fewer members were enrolled in the highest-level Medicare Advantage plans. HUM is challenging the decision, which threatens to reduce bonus payments from Washington.

Conagra (CAG) also fell after results missed estimates.

Charting the Market

Last week saw the S&P 500 remain above its July peak and its high on September 18, when the Fed cut interest rates by 50 basis points. The relatively tight price action near record highs could reflect a lack of selling pressure.

Friday’s session was also potentially important because the index opened sharply higher. It pulled back to almost unchanged before rallying to its biggest gain in two weeks. That could be another sign that buyers outnumber sellers.

Volatility has been falling as well. Other periods of lower volatility, like last November or June, have been associated with rising prices.

AMD, Amazon.com

AMD is another chart that may interest traders, especially with its AI event this week. Will they see potential space for a move into the price gap from July 17, a day semiconductors fell sharply on fears of export controls?

AMZN also turned green on Friday after dropping for seven straight sessions. That was its longest losing streak in over a year, according to TradeStation data.