Warsh Remains Tight Lipped and the Market Likes That: 8 Key Items Shaping the Stock Market Friday

These are the early headlines and other items poised to influence the market at the start of trading Friday. As we share this collection of market drivers, U.S. equity futures point to a mixed market open.

1. Federal Reserve Chairman Kevin Warsh voiced optimism on Friday about US economic strength and surprise about how well global economies have been “hanging in there” amid continued energy shocks and tighter monetary policy to fight inflation… But in keeping with his ⁠style since taking the reins as Fed chief in May, he gave no preview about whether he feels more interest-rate hikes will be needed, or when. “I don’t prejudge meetings,” Warsh added in the discussion with IMF Managing Director Kristalina Georgieva. “I don’t believe in saying now what I might do at the meetings that we have in the balance of this year.” (Reuters) But by remaining tight-lipped, Warsh appears to have eased those fears. Traders on Friday were pricing in a 15% chance of an October interest-rate hike, according to the CME FedWatch tool—down from 28% a day ago. (Barron’s)

In last Friday’s Portfolio Weekly Roundup, we cautioned not to expect Fed Chair Kevin Warsh to say much, if anything, about potential monetary policy moves during the IMF-World Bank Annual Meetings in Bangkok early Friday. Warsh did not disappoint, but the market is interpreting this as a positive signal the Fed isn’t likely to deliver a rate hike later this month.

With that October 28 policy decision only days away from the midterm elections, we concede the odds of a hike are low despite the step-up in inflation pressures captured by September CPI and PPI data. What we’re starting to consider is if those inflation pressures persist or strengthen further (see our next item below), could the market start to consider a larger-sized rate hike in December than the 25-basis point one it expects? As of this morning, the CME FedWatch Tool puts the odds of a 25-basis point rate hike at the Fed’s December 9 meeting at 79.0%.

2. JB Hunt Transport Services delivered strong third-quarter sales growth, but that growth isn’t dropping to the bottom line. Inflation is biting results, and investors weren’t initially impressed by the freight company’s numbers… Fuel prices are the problem. Delco said the company is experiencing “some of the most radical and abnormal swings in fuel prices” ever… (Barron’s)

This is a sharp reminder about the pain point that higher energy prices will pose and the inflationary tailwind to come as companies respond to those higher costs. During last night’s earnings call, JB Hunt (JBHT) said it expects to see “more progress” on the pricing side so that the “relationship between price and costs moving forward should get better from what we saw in August and September.” As we move through the coming weeks, our eyes and ears will be open for similar signals from company management teams.

3. Netflix said on Thursday it appointed former Disney executive Peter Rice as chief content officer, succeeding Bela Bajaria, who is leaving after nearly a decade at the streaming platform. (Reuters) Mr. Rice spent roughly three decades working at Fox, and he had high-ranking executive positions working in both television and film. He joined Disney after it acquired most of Fox’s entertainment properties in 2019, and oversaw its enormous television slate. He left Disney in 2022 after being pushed out by Bob Chapek, the company’s top executive at the time. Since then, he has been producing film and television, most recently overseeing “The Social Reckoning,” which Sony Pictures released last week to disappointing box office numbers, and “Misty Green” from A24. (NY Times) Among the roughly 1,000 Netflix staffers laid off on Wednesday were TV executives Lisa Lang McMullen, James Oh, Carolina Garcia and Andrew McQuinn. McMullen was most recently director of overall deals and series at Netflix, Oh was director of drama series, Garcia and McQuinn both held the title of director of original series. (Hollywood Reporter) Rice, whose name started circulating for the Netflix job last week, is a rare executive with high-level experience in both features and TV having run Fox Searchlight and subsequently the Fox Networks Group and Disney’s television operation. One area he does not have a lot of experience — streaming. (Deadline)

Alongside the news that Netflix (NFLX) would slash around 1,000 jobs, the departure of those responsible for the company’s creative slate is a bit worrisome, in our view. Also, the naming of Rice, appears, at least on paper, to be a questionable choice given the poor reception for The Social Reckoning and his lack of streaming experience. This suggests Netflix’s ability to quickly turn its content ship around and leverage what we refer to as Content is King is low.

4. Some current Anthropic investors and prospective investors in its upcoming initial public offering are weighing a lower valuation ‌for the AI company after its latest financial disclosures, four people familiar with the matter said, amid broader concerns over the ballooning cost of financing AI… At Wednesday’s meeting, Anthropic told prospective IPO investors that its third-quarter revenue jumped 45% to $16.8 billion from the previous quarter, and that it was profitable on an adjusted basis during the quarter. While ⁠those numbers assuaged some concerns about the massive costs of developing AI systems, some investors were disappointed by the slowing sequential growth rate in the latest quarter, as Anthropic’s revenue more than doubled from the first quarter to $11.6 billion in the second quarter… (Reuters) Bankers concede that marketing IPOs has become much harder due to factors including the upcoming midterm elections, and investors are more choosy. (Bloomberg)

Reports are the discussed valuation for Anthropic is around $1.5 trillion, a step down from the roughly $2 trillion valuation that had been previously bandied about. The ultimate valuation will hinge on investor demand for the shares, but the question we’re focusing on is how might a lower valuation impact the at-least $518 billion Anthropic has committed to spend over a decade for cloud services, computing, and infrastructure?

5. Taiwan is preparing to tighten export controls on AI chips to further align with US restrictions, according to a senior official in Taipei, joining a Trump administration clampdown on the smuggling of cutting-edge semiconductors to China. Taipei plans to add artificial intelligence servers and cutting-edge semiconductors to a list of controlled items, Taiwan’s Minister of Economic Affairs Kung Ming-hsin told Bloomberg News. (Bloomberg) Taiwan plans to raise billions of dollars to develop industrial parks in the US that would build a base for a comprehensive supply chain for Nvidia Corp. and other AI hardware makers in the country. The initiative is starting with a complex in Texas that would cost as much as $4 billion to build, according to Taiwan’s Minister of Economic Affairs Kung Ming-hsin. (Bloomberg)

Fortunately, companies like Nvidia (NVDA) have little to no China business baked into their forecasts, but we’ll want to see how server companies such as Dell (DELL) and Hewlett Packard Enterprise (HPE) respond. For example, while Dell’s filings with the SEC break down its revenue into U.S. (55%) and Foreign Countries (45%), its 10-K filings point to manufacturing facilities in the U.S., Malaysia, China, Brazil, India, Poland, and Ireland.

6. Wall Street will be looking forward to a break this weekend after all the turbulence but the respite won’t last long with AI concerns still raging and oil prices and yields bending in the wind of geopolitical volatility. Moreover, a raft of earnings are coming next week—including the first of the Magnificent Seven with Tesla’s much anticipated numbers. (Barron’s)

With a modest amount of new economic data and less-than-market-moving earnings coming at us, we may see some dip buying occur today. However, the increase in the number of companies reporting next week and the Flash October PMI report from S&P Global mean we will want to remain selective as a fuller picture comes into focus.

7. Economic data today per TipRanks: Import/Export Prices (September), Industrial Production & Capacity Utilization (September).

8. Companies reporting today per TipRanks: AM – Citizens Financial Group (CGF), Ladder Capital (LADR), M&T Bank (MTB), Travelers (TRV), Truist (TFC).

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At the time of publication, TheStreet Pro Portfolio was long NFLX and NVDA.