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Stocks closed moderately higher yesterday across the board.
Kevin Matras   
Profit from the Pros
By Kevin Matras
Executive Vice President
Zacks Investment Research
  

Fed Held Rates Steady Yesterday, Mixed Earnings After The Close, More Earnings And PCE Inflation Report On Tap For Today

Stocks closed moderately higher yesterday across the board.

The main even during yesterday's session was the FOMC Announcement. As expected, the Fed left rates unchanged. There were a couple of dissents (two wanted to raise rates by a quarter point), but 10 voted to maintain rates at current levels. The official statement's language upgraded the word 'solid' to 'strong' when describing economic activity. And they noted that 'the accumulation of more information' will help them determine their next policy move.

The only real surprise was in procedural changes in 2027 and 2028. The Fed meets 8 times a year. In 2027, one of those meetings will be a strategy session, and will not include a Fed Funds vote, nor a post-meeting policy statement. In 2028, two of those meetings will be strategy session only, further reducing rate-setting decisions to only six sessions.

The Fed will get the opportunity to accumulate more information today with the Personal Consumption Expenditures (PCE) index (which is the Fed's preferred inflation gauge). Headline rates are expected to be up 0.5% m/m vs. last month's 0.3% pace, while the y/y rate ticks up to 3.6% vs. last month's 3.4%. The core rate (ex-food & energy) was up 0.3% m/m vs. last month's 0.2%. The y/y rate is expected to clock in at 3.1% vs. last month's 3.0%.

In addition to the PCE report, we'll also get the advance estimate (1st of 3) for Q3 GDP. The consensus is calling for 3.1% vs. last quarter's 2.2% pace. We'll also get Weekly Jobless Claims.

After the close yesterday, the market shifted its focus back to earnings.

Mag 7 stock Alphabet posted a negative EPS surprise of -27.89%, and a negative sales surprise of -0.53%. That translated to a quarterly EPS growth rate of -26.13% vs. this time last year, but a sales growth of 27.14%. But they pulled a 'Meta,' by reporting negative free-cash flow of -$9.07 billion vs. expectations for -$2.7B. Big Q3 capex of roughly $51.4B was the culprit. And they also said they expect capex to rise significantly next year. The stock was up 1.34% in the regular session before earnings, but sank by roughly -10% in after-hours trade following earnings.

But it was a different story for Microsoft, also a Mag 7 stock. They posted a positive EPS surprise of 3.82%, and a positive sales surprise of 1.88%. That equated to a quarterly EPS growth rate of 18.40%, and a sales growth of 18.81%. They guided next quarter's rev outlook to a midpoint of $96.6B vs. the consensus estimate of $95.6B. Big growth in Azure rev with a backlog that increased 73%. And unlike Meta or Alphabet, they remained free-cash flow positive despite spending $45.2B on capex, etc. They were off -0.06% in the regular session, but jumped by more than 5% in after-hours trade following earnings.

Today we'll hear from another Magnificent 7 stock Amazon, which reports after the close. All in all, we'll hear from 361 companies, including Intel, Mastercard, Merck, Caterpillar, and Gilead Sciences to name a handful.

Only 2 more trading days left in the month. At the moment, the S&P, Dow, and Russell 2000 are in the green for October. The Nasdaq still has some work to do. But it's not over yet.

And remember, regardless of how the month finishes, Q4 is historically the best quarter for stocks. And I'm expecting a strong finish to the rest of the year.

See you tomorrow,

, Zacks Investment Research

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