In today’s Daily Rundown video, Chris Versace lays out the potentially market-moving Big Tech earnings reports and economic data points we’ll be focused on in what will be a frenetic week to close out October.
As those data points are dissected and learnings digested, he explains how we’ll be connecting the dots for the portfolio and our shopping list of stocks, being wary of minefields and focused on longer-term opportunities.
Transcript
CHRIS VERSACE: Morning, everyone. Chris Versace here. Monday, October 28. Start of the final days of October trading. Not only is it going to be busy with over 900 companies reporting, 169 of which are S&P 500 constituents. That's right, roughly 34% of the S&P 500 is going to report this week alone. But from a S&P 500 NASDAQ weighting perspective, roughly 23% of that basket and 30% of the NASDAQ composite are going to report this week. It's going to be frenetic.
When we talk about this 23% versus 169 S&P 500 companies, well, what's the difference? Why does it matter? And why is it going to shape the market? Well, pretty much that 23% of the S&P 500, 30% of the NASDAQ composite really comes down to five stocks. And you know who they are. We own them in the portfolio.
But let's call them out. We're talking Apple, Alphabet-- Excuse me, Amazon, Meta and Microsoft. And because they account for such a large weighting of the market, it stands to reason that, depending on how their quarterly results come in and their guidance, whether they deliver beat and raise quarters, whether they surprise to the upside, or they leave the market wanting, the way those earnings come in collectively is going to shape the direction, not only of the market, but also for consensus earnings expectations for the S&P 500.
Remember, coming into this week, the market multiple is stretched above 24 times consensus earnings. And we have a big hurdle for the consensus numbers for 2025, still up more than 14% year over year. Typically around this time of year, it's up about 10% or so. So the market is really looking for more earnings growth in 2025. Will the guidance from especially these big five tech companies support it? So
That's what we'll be paying attention to this week. And remember, as we get more information from these companies, not only are we going to be thinking about our positions in them, but we're going to be asking questions about others in the portfolio. So, for example, when Apple reports, what do they say about guidance, and what does this mean for a company like Qualcomm that we also own with Microsoft? What are they seeing on the AIPC front? Are they seeing a quicker-than-expected ramp? And what does that mean for Qualcomm?
We also get with results from Meta, Microsoft, Amazon, and Google, the latest on Cloud, data center demand, capital spending. We'll be eyeing all of that as it relates to NVIDIA and Marvell. And from those same four companies, what are they telling us about AI adoption. We've gotten a lot of positive comments over the last few weeks.
And we shared a number of them over the weekend. And our signals alert. I hope you read it. But we'll be looking to see what these four big tech companies have to say about AI adoption and thinking about the implications for our positions in ServiceNow and Elastic MV.
But in addition to those big tech companies, remember we also have quarterly results this week out from Mastercard Universal Display and Vulcan Materials. Now normally you'd be saying, Chris, that sounds like a pretty busy week. And it is, but there's a little more.
On top of all of that the next several days will also bring us the September PCE Price Index. Remember, the PCE Price Index is the preferred inflation metric for the Fed. Consensus data says that we should see some further progress on the inflation run-- inflation front, excuse me, but we'll want confirmation.
The other big set of data coming this week is going to be October jobs data. ADP brings their Employment Change Report on Wednesday. And the big important report, as we know, is the October Employment Report. That comes out on Friday. For October, the nonfarm consensus, as we stand today, is around 110 to 140,000 nonfarm jobs for the employment report on Friday.
Here's the thing, folks, when we looked into the flash PMI data that we got last week, it said that in aggregate, of course, manufacturing and services that the rate of job creation was only modestly slower compared to September. And if you remember September, it really surprised to the upside with this 254,000 job figure. So when we look at the flash PMI report, it suggests that we could see a stronger than consensus print on Friday.
But I do think that we will potentially get some revisions to the consensus range. Again, that on 110 to 140,000 jobs. Why do I say this? Well, tomorrow we get the September JOLTS report. Again, Wednesday brings the ADP Employment Change Report. And on Thursday, we also get the Challenger Job Cuts Report.
And with the Challenger Job Cuts Report, yes, the headline, everybody focuses in on the number of cuts. But way down in the bottom, there's a paragraph that I like to read because it talks about hiring intentions. And that has been very positive over the last few months. So as we wade through all this data, we'll be taking a look at expectations for Friday's Employment Report, calling out any major revisions relative to the current consensus numbers.
Now, why are we paying attention to all of this? Well, because if the overall jobs data shows continued strength in October, it could see Fed rate cut expectations soften even further. We started to see this last week.
If you remember, we called out to you at the beginning of last week, the market consensus was for 525 basis point rate cuts between November and June. Midweek that slipped to around 4 and 1/2 following the Atlanta Fed GDPNow model for the September quarter, clocking in still above 3%. Actually, it was 3.3%, but still well above 3%.
That strength that we saw in the October flash PMI report says that the robust economic environment that we've seen lately for the September quarter has likely spilled over and continued into the current one. And more importantly, the new order data found in the flash PMI report for October 17-month high suggests that we're likely to go into November on rather robust footing for the economy as well.
Put it all together. Well, we saw some reaction in the 10-year Treasury yield, which, as you know, ticked higher. But as we come into this week, the leading consensus number for the number of Fed rate cuts per the CME FedWatch tool, now between November and June, 4. So we are seeing the market slowly ratchet back its expectations.
So back to the October employment data. If it comes in stronger than expected, it's going to suggest the Fed does not need to cut rates, even though the central bank would like to get monetary policy back out of restrictive territory more towards a neutral rate. Should this week's data add reasons for the Fed to take a slower path for rate cuts, we're likely to see our more interest rate sensitive stocks in the portfolio trade off.
We've already seen Builder move lower for that. We are keeping an eye on the 167 to 175 support levels that are out there. But as we think about it, a slower path for rate cuts probably means the economy is humming. That's good news, actually. But it also doesn't mean that rate cuts are absolutely off the table, more likely, it's just a matter of time.
So we can afford to be patient. We can afford to be opportunistic with Builder shares, but also others on our shopping list. Remember that we've been concerned about a overbought market, extended S&P valuation heading into the current earnings season.
So if we see any type of volatility, we have the firepower so that we can step in when and where it makes sense. So as it comes to this week, whether it's on the earnings front, the economic data front, and what all those implications are for the market and the portfolio, we're going to continue to see how things unfold and respond as warranted.
So my friends, a very busy week. Please be sure to check your emails, your alerts. We want to make sure you are right there with us. And as you know, if we make any moves with the portfolio, we want to make sure that you're tracking what we're doing as we do it. Thanks for watching today's video, my friends. I will be back with you tomorrow.