Actors Settle Strike, But Groundhog Day Still Playing on Wall Street as Powell Remarks Awaited

(Thursday market open) It feels like Groundhog Day on Wall Street. Federal Reserve Chairman Jerome Powell speaks again today as major indexes continue to creep slowly higher without much in the way of fresh catalysts or broad participation. Data remains thin, but the actors’ strike is over.

The market’s doldrums might get interrupted by Powell at 2 p.m. ET when he participates in a policy panel discussion at a conference in Washington, D.C. Opening remarks he made at a different event yesterday didn’t feature any reference to monetary policy. Three other Fed speakers are on tap today as well and so is a $24 billion 30-year bond auction by the U.S. Treasury.

There’s a sense that Wall Street is taking a breather after last week’s nearly 6% rally, hanging out near recent highs but without much conviction that would allow the S&P 500® Index (SPX) to push past technical resistance near 4,400. While it’s unclear what would make that happen, next week’s October inflation data waits in the wings and could help set the direction for Treasury note yields. Lately, the 10-year Treasury note yield has waved the baton for stocks.

One word heard a lot this week is “consolidation.” So-called “mega-caps” continue to account for much of the recent SPX strength. Declining shares easily outnumbered advancing ones again Wednesday, a bearish pattern that’s persisted all week even though the SPX is up eight days in a row—its longest positive streak in nearly two years. The Nasdaq (COMP) is up nine days in a row.

Morning rush

• The 10-year Treasury note yield (TNX) rose 4 basis points to 4.55%.
• The U.S. Dollar Index ($DXY) is steady at 105.66.
• Cboe Volatility Index® (VIX) futures are nearly unchanged at six-week lows of 14.44.
• WTI Crude Oil (/CL) rose 0.8% to $75.95 per barrel, still near three-week lows.

Front-month WTI crude fell below $76 per barrel yesterday for the first time since late July, partly due to growing global economic worries. It’s also now below its 200-day SMA for the first time in three months, a technically bearish development if it continues. Crude bounced between $70 and $75 at times earlier this year, and the question is whether it goes back to that or finds buying interest at these levels, perhaps from hedging as some companies take the opportunity to build supply at these lower prices. However, this is a seasonally weak time of year for crude.

“The price action suggests OPEC+ supply cuts may remain in place,” says Jeffrey Kleintop, chief global investment strategist at Schwab.

Just in

Initial Weekly Jobless Claims came in at 217,000, down from an upwardly revised prior week figure of 220,000 and just below the Briefing.com consensus estimate of 220,000. At the outset, this isn’t a report that looks like it will cause much in the way of market movement. A sudden spike in claims, if it occurs, might get investors more worried about the pace of economic growth.

Overnight, China reported a 0.2% year-over-year drop in its October Consumer Price Index (CPI) and a 2.6% drop in its Producer Price Index (PPI). The drop in the October CPI was worse than expected and followed a flat reading in September. This follows weaker-than-expected export data from China earlier this week.

Stocks in spotlight

Walt Disney’s (DIS) shareholders may feel like they just got off Space Mountain given the stock’s turbulent performance this year, but the ride grew gentler late Wednesday. Shares rose 3% in premarket trading but remain down 27% from their peak this year after Disney beat analysts’ average earnings per share (EPS) estimate and reported revenue in line with Wall Street’s thinking. More importantly, perhaps, was a 7% rise in Disney+ core streaming subscribers and the company being on track to save $7.5 billion. The streaming business keeps losing money, but Disney forecasts profitability by its fiscal Q4 of 2024.

Soon after Disney’s earnings, media outlets reported that actors and studios had reached a tentative deal to end the actors’ strike that had threatened movie production for next summer at Disney and other film studios. This may also be helping Disney shares early Thursday, and shares of Warner Brothers Discovery (WBD) and Paramount (PARA) also rose.

MGM Resorts (MGM) shares jumped nearly 3% ahead of the open, after both EPS and revenue exceeded analysts’ expectations and the company launched a new $2 billion share repurchase plan.

What to watch

More color on consumer health is around the corner as big retailers report next week. Names on deck include Home Depot (HD), Target (TGT), Macy’s (M), Gap (GPS), and Walmart (WMT). Retailers have enjoyed varying degrees of success lately, something we’ll delve into in coming days.

“Mega-cap” earnings aren’t finished, either, for that matter. Nvidia (NVDA) is expected to report a week from Tuesday, just before Thanksgiving. It’s one of the more prominent stories of the year as revenue spiked in part due to artificial intelligence (AI)-related demand for Nvidia’s semiconductor chips. The company’s November 21 earnings call could be a chance to hear what executives plan for an encore in 2024.

The data picture is quiet for now, but tomorrow brings preliminary November Consumer Sentiment from the University of Michigan. Consensus for the headline figure is 63.7, down from 63.8 in October, according to Trading Economics.

Eye on the Fed

Early today, futures trading pegged chances at 85% of the Federal Open Market Committee (FOMC) holding its benchmark funds rate steady following the December 12–13 meeting, according to the CME FedWatch Tool. Chances of rates staying on pause following the FOMC’s January 30–31 meeting are 76%.   

CPI watch: Key inflation data next week starts Tuesday with the October Consumer Price Index (CPI). “CPI could be the next market-moving release, with expectations for the core CPI to rise by 4.1%, year-over-year, but come in flat from the previous month,” says Collin Martin, a director of fixed income strategy at the Schwab Center for Financial Research. “Fed officials have suggested that they want evidence that inflation is in fact moving towards the Fed’s 2% target, and any upside surprise could undo some of last week’s drop in Treasury yields.”

The recent drop in crude oil prices, by the way, may have come too late to factor much into the CPI report. But other commodities, including copper, palladium, and lumber, slumped from their respective 2023 highs even before crude hit its current skid.

Talking technicals: As of Wednesday, the SPX traded just below its October intraday high of 4,393. It hasn’t traded above 4,400 since September 20. As it happens, the 100-day simple moving average (SMA) rests at 4,402. 

Thinking cap

Ideas to mull as you trade or invest

Shutdown clock ticking: Next Friday’s deadline looms for Congress to pass legislation keeping the government open, but there’s at least some optimism the House of Representatives might punt the showdown into January with another temporary spending deal. “Speaker Mike Johnson (R-LA) just took the position, so House Republicans could ultimately give it a pass and regroup for a big fight going forward,” says Michael Townsend, managing director, legislative and regulatory affairs at Schwab. “If that’s what happens next week, then shutdown odds in January become very high.”

Services slump? Demand for travel, hotels, restaurants, and casinos have helped boost the economy this year even as the goods sector stepped back, but global services demand could be slowing. There’s been a slump in airline bookings and services PMI surveys recently, while services employment fell in the latest government household survey. Still, earnings strength reported by Disney and MGM on Wednesday suggests that at least to some extent, the glow hasn’t faded. Any slide in the services economy could help reinforce ideas that central banks may be done hiking rates, supporting the Treasury market. Holiday entertainment demand for things like streaming, movies, travel, and eating out may help investors get a handle on the trend in services, and next week’s October Retail Sales report is an opportunity to check items like demand at food services and drinking places. Those rose sharply year-over-year in September, according to the government.

Home cooking: Despite the recent drop in Treasury yields, average 30-year mortgage rates remain near 7.6%. That didn’t stand in the way of weekly mortgage applications rising 2.5% on a seasonally adjusted basis week-over-week, according to the Mortgage Bankers Association (MBA). While mortgage applications remain near three-decade lows, rates remain at multi-year highs and housing prices are also soaring as supply stays tight. The average new home sold in September cost more than $500,000, according to the U.S. Census Bureau, while existing home sale prices that month rose 2.8% from a year earlier to a median of $394,300, according to the National Association of REALTORS (NAR). “The supply issue is nearly as strong a factor as the rate issue” in keeping mortgage demand down and prices up, says Kevin Gordon, senior investment strategist at Schwab. However, if rates remain at these relatively high levels, there could eventually be an acceptance period where more potential buyers take the plunge and owners now delaying moves because of their current low mortgage rates stop hoping for improvement. “People don’t just want to wait forever,” says Schwab’s Martin. “The rate just becomes another factor in the decision-making process.”

Calendar

Nov. 10: University of Michigan Preliminary November Consumer Sentiment.

Nov. 13: Expected earnings from Tyson (TSN).

Nov. 14: October Consumer Price Index (CPI) and expected earnings from Home Depot (HD).

Nov. 15: October Producer Price Index (PPI), October Retail Sales, November Empire State Manufacturing, and expected earnings from Target (TGT) and Cisco (CSCO).

Nov. 16: October Industrial Production and October Capacity Utilization, and expected earnings from Walmart (WMT), Macy’s (M), Applied Materials (AMAT), and Gap (GPS).