Wall Street Week Ahead: Tests coming for rocky market from Tesla, Netflix and delayed CPI report
NEW YORK: Earnings reports from companies led by Tesla and Netflix will provide a deeper look at US corporate profits in the coming week, and a delayed US inflation release will mark another test for the stock market, which has become shakier even as it remains around record highs.
The fourth year of the S&P 500’s bull run kicked off this week with some significant gyrations after a long period of market calm. The CBOE market volatility index on Thursday ended at its highest closing level in nearly six months.
“The market is becoming more volatile, but it’s also coming off of a very non-volatile period where we didn’t have a lot of risk catalysts bubbling to the top,” said Michael Reynolds, vice president of investment strategy at Glenmede. “Once you have valuations hit sort of full levels, as we’re seeing now almost across the board, you have to be on the lookout for incremental risk catalysts.”
The spark for the latest bout of volatility has been a surprise rise in US-China trade tensions after tariffs had receded as a major issue for markets in the past few months. Stocks slumped last Friday after the US threatened to implement a 100 percent increase in tariffs by November 1 after the country balked at China’s rare earth controls.
US-China back and forth will be key for markets in the coming week, said Doug Beath, global equity strategist at Wells Fargo Investment Institute, with the expectation that US President Donald Trump and Chinese leader Xi Jinping will meet later this month.
Sharp declines in shares of regional banks on Thursday that weighed on markets also kept investors on edge. Stocks are on pace for a strong year. The benchmark S&P 500 is up nearly 13 percent year-to-date and within roughly 2 percent of its record high. But along with recent rockiness, there are signs the market is weakening under the surface.
The percentage of S&P 500 stocks trading in some form of an uptrend has declined from 77 percent in early July to 57 percent as of Tuesday, according to Adam Turnquist, chief technical strategist for LPL Financial, who analyzed the stocks compared to their moving averages over short-to-long term timeframes.
The percentage of stocks trading in a downtrend has increased from 23 percent to 44 percent over that period since early July.
That “narrowing gap highlights emerging cracks in the market’s foundation,” Turnquist said in written commentary. Similarly, Kevin Gordon, senior investment strategist at Charles Schwab, said he will be watching the extent to which massive stocks are responsible for the market’s gains going forward.
“If you have a fewer number of companies that are actually moving higher, but the indexes do move higher because of the megacaps, that’s a really important divergence,” Gordon said.
Attention will be on third-quarter earnings after major banks started the reporting season on a strong note. Aside from streaming giant Netflix and electric vehicle maker Tesla, other companies due to report in the coming week include consumer companies Procter & Gamble and Coca-Cola, aerospace and defense giant RTX and tech stalwart IBM .The corporate results and executive comments will offer a view into the economy at a time investors are lacking their typical data flow due to the US government shutdown. Because of the ongoing shutdown, which began on October 1, releases including the monthly employment data have been delayed.
“(Corporate) reports and what companies say is really our best chance at assessing what the broader economic health is,” Gordon said.
The government has said it will release the US consumer price index for September on Friday, nine days after it was originally scheduled, saying the CPI data allows the Social Security Administration to meet deadlines related to timely payment of benefits.