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Q3 draws to a close, and investors have plenty to dig their teeth into.
The trader spotlight in the coming week shines on:
U.S. nonfarm payrolls for September, and
U.S. and Eurozone inflation data, which will likely shape expectations
for the path of interest rates, on both sides of the Atlantic
Next are Reuters’ five world market themes, re-ordered for equity traders—
(1) Q3 Ends and Q4 Begins. The Main Q4 Event? Likely, U.S. Midterm Elections
The final leg of the year begins on Thursday, as what can only be described as a testing Q3 morphs into a potentially pivotal Q4.
It's kicking off against a tetchy backdrop.
Turbulent bond markets — rattled by the Iran war, fiscal worries and a torrent of AI debt which might just be bankrolling the end of human civilization — mean global borrowing costs are now their highest since the 2007-08 financial crash.
Not that you'd know it looking at the main world stock indexes. They are less than -2% off all-time highs and up more than +12% for the year, largely thanks to AI euphoria.
Q4 has lots in store.
Peace in the Middle East or Ukraine both look unlikely. Interest rates are expected to keep going up, while the first weekend has what now seems a genuine toss-up of a Brazilian election.
The main event will undoubtedly be November 3's U.S. midterm elections.
Current polls suggest Donald Trump's Republican party could lose the House of Representatives and maybe even the Senate — and that could make for a very interesting end to the year.
(2) On Wednesday, Micron Reports Latest Earnings Results
Earnings from Micron Technology (MU - Free Report) , the $1.2-trillion semiconductor maker, are due after the bell on Wednesday and will provide the next test for an AI trade that has shown signs of fatigue in recent months.
Micron, a key supplier of memory chips used alongside Nvidia's (NVDA - Free Report) AI processors, has been a big beneficiary of the spending splurge on AI data centers, pushing its shares up over +280% year-to-date.
But its shares have fallen by more than -6% during the quarter, while the Philadelphia Semiconductor Index (SOXX - Free Report) , has shed an even steeper -14%, as investors question how long heavy capital spending can continue and whether demand growth can continue at its current pace.
If Micron's guidance surpasses expectations, it could soothe some nerves that AI infrastructure spending is faltering or that memory supply constraints are easing.
Should guidance disappoint, the market might view it as an early sign that the AI spending boom is losing momentum.
(3) On Friday, September U.S. Nonfarm Payrolls Come Out
A fresh look at U.S. employment and inflation trends in the coming week will shed light on the economy's strength and when the Federal Reserve will hike interest rates again.
September's nonfarm payrolls report, due on Friday, is Wall Street's main event, following a blowout report the prior month that helped cement the Fed's first rate hike in three years.
September payrolls are expected to rise by +100K jobs, with the unemployment rate at 4.2%, according to a poll of economists.
Wednesday's release of the monthly Personal Consumption Expenditures (PCE) price index will offer signs about whether persistently high inflation is moving toward the Fed's 2% annual target.
Futures pricing suggests a roughly 50/50 chance that the Fed will again hike by a quarter point in October.
In a survey released this week, a measure of prices paid by businesses for inputs surged to a nearly four-year high.
(4) On Friday, Euro Zone Inflation Data Gets Released
Investors will also get Eurozone inflation data on Friday, as well as price figures from Tokyo that are viewed as a barometer for Japan.
The key question for markets is whether energy price surges have lasted long enough to cause ripple effects across major economies that may push wages, living costs and interest rates higher.
Interest rate markets are already pricing in a faster global tightening cycle than they were just weeks ago, pushing 10-year Treasury yields above 5%.
A yield that stays around its highest since 2007 is something some newer bond and equity investors have never worked with.
Hope that inflationary forces prove to be transient is battling with fears that long-term capital costs of 5% or higher will become the norm.
Current market valuations could struggle.
(5) On Tuesday, the Reserve Bank of Australia (RBA) Likely Hikes Policy Rate
Australia's house prices are falling and the country's jobless rate rose unexpectedly to a five-year high.
That's not the best backdrop against which to be raising interest rates.
Yet a rate hike is what markets, and economists, expect the Reserve Bank of Australia to deliver when it meets on Tuesday. A quarter-point increase would take rates to a 15-year high of 4.6%.
Like most major central banks, the RBA finds itself in a bind as oil prices push back above $100.
Even after three rate increases this year, core inflation is running above the RBA's 2-3% target range. Australia's cash rate is now seen peaking near 5%.
Once upon a time, when house prices fell, rate cuts followed to shore up the economy. That era is likely over.
Zacks #1 Rank (STRONG BUY) Stocks
Next, I picked three Tech Zacks #1 (STRONG BUY) large-cap stocks.
(1) Seagate (STX - Free Report) : This is a $906 a share Computer-Storage stock, with a market cap of $206B
It is found in the Zacks Computer-Integrated Systems industry. The stock holds a Zacks Value score of F, a Zacks Growth score of A, and a Zacks Momentum score of D.
F12M P/E: 25.1.
Image Source: Zacks Investment Research
Seagate is the second-largest manufacturer of hard disk drives (HDDs) in the U.S.
HDDs are used as the primary medium for storing electronic information in systems ranging from desktop computers and consumer electronics to data centers delivering information over corporate networks and the Internet.
Seagate also develops other electronic data storage products such as SSD (solid state drive) and solid-state hybrid drives (SSHD).
The company has an industry-leading vertically-integrated operation with internal control over the majority of its key component suppliers.
The company's HDD products are designed for mission critical and nearline applications in enterprise servers and storage systems; edge compute/client computer applications.
SSD products mainly comprise serial attached SCSI ('SAS') and Non-Volatile Memory Express ('NVMe') SSDs.
Cloud systems and solutions portfolio incorporates modular original equipment manufacturer ('OEM') storage systems and scale-out storage servers.
(2) Hitachi (HTHIY - Free Report) : This is a $35 a share Japanese tech stock, with a market cap of $105.6B
It is found in Zacks Diversified Operations industry. The stock holds a Zacks Value score of C, a Zacks Growth score of D, and a Zacks Momentum score of D.
F12M P/E: 25.6.
Image Source: Zacks Investment Research
Hitachi Ltd., headquartered in Tokyo, is one of the world's leading global electronics companies.
They manufacture and market a wide range of products, including computers, semiconductors, consumer products and power and industrial equipment.
(3) Advantest (ATEYY - Free Report) : This is a $209 a share Electronics Test stock, with a market cap of $153.3B
It is found in the Zacks Electronics-Measuring Instruments industry. The stock holds a Zacks Value score of F, a Zacks Growth score of B, and a Zacks Momentum score of B.
F12M P/E: 32.3.
Image Source: Zacks Investment Research
Advantest Corp. is one of the world's leading automatic test equipment suppliers to the semiconductor industry, and is also a producer of electronic and optoelectronic instruments and systems.
A global company, Advantest has long offered total ATE solutions, and serves the industry in every component of semiconductor test: tester, handler, mechanical and electrical interfaces, and software.
Its logic, memory, mixed-signal and RF testers, and device handlers, are integrated into the most advanced semiconductor fabrication lines in the world.
Key Global Macro
Friday’s U.S. nonfarm payroll data will be the major macro prints.
On Monday, the Reserve Bank of Australia (RBA) kept its policy rate at 4.35%, lower than the 4.60% analysts had been expecting.
On Tuesday, U.S. JOLTS job openings for August come out. The prior July reading showed 7.27M openings.
Australia’s CPI for August comes out. The prior July reading was a hot +3.6% y/y.
On Wednesday, U.S. core PCE for August comes out. Consensus looks for +3.4% y/y, up a notch from July’s +3.3% y/y reading.
On Thursday, the U.S. ISM manufacturing PMI comes out for September. The consensus looks for 54.8, rising a bit from the August 54.6 reading.
On Friday, U.S. nonfarm payrolls for September come out. Consensus looks for +100K in September job additions. The unrevised August reading was +162K.
Consensus looks for a 4.2% household unemployment rate, up from 4.1% in August.
Eurozone core HICP inflation for September likely rises to +2.6% y/y from +2.4% y/y in August. Broad Euro Zone HICP for SEP rises to +3.5 y/y from +3.2% y/y.
Conclusion
On Sept. 23rd, Zacks Research Director Sheraz Mian shared an EPS growth look.
His key points:
(1) Zacks expects total S&P500 earnings in Q3 currently to increase +23.9% from the same period last year, on +11.4% higher revenues.
Zacks expects 14 of the 16 Zacks to enjoy positive earnings growth and 6 sectors producing double-digit growth.
This will be the most broad-based earnings growth performance in recent times.
(2) Zacks sectors expected to enjoy double-digit earnings growth in Q3 are –
Aerospace (+159.5%)
Energy (+111.8%)
Tech (+41.9%)
Basic Materials (+29.8%)
Transportation (+14.9%), and
Industrial Products (+13.0%)
(3) Excluding the Tech sector’s substantial contribution?
Q3 earnings for the rest of the S&P 500 index would be up +14.3% (vs. +23.9% otherwise).
Excluding the Energy sector?
The aggregate growth rate would decline to +19.9%. If we excluded both the Tech and Energy sectors, aggregate Q3 earnings growth for the rest of the S&P 500 would be +7.4%.
(4) Micron (MU - Free Report) and Nvidia (NVDA - Free Report) remain material contributors to the Tech sector’s growth picture.
Excluding Nvidia, Micron, and Alphabet (GOOGL - Free Report) , which enjoyed an outsized gain in the preceding period?
Q3 earnings for the rest of the Tech sector would be +20.5% (vs. +41.9% otherwise).
That’s all for this Global Week Ahead.
I wish the best of luck, to all of you, in your trading and investing!
John Blank, PhD. Zacks Chief Equity Strategist and Economist
View the Zacks #1 Rank List
Image: Bigstock
Q4 Is (Almost) Here: Global Week Ahead
Key Takeaways
What happens in this Global Week Ahead?
Q3 draws to a close, and investors have plenty to dig their teeth into.
The trader spotlight in the coming week shines on:
Next are Reuters’ five world market themes, re-ordered for equity traders—
(1) Q3 Ends and Q4 Begins. The Main Q4 Event? Likely, U.S. Midterm Elections
The final leg of the year begins on Thursday, as what can only be described as a testing Q3 morphs into a potentially pivotal Q4.
It's kicking off against a tetchy backdrop.
Turbulent bond markets — rattled by the Iran war, fiscal worries and a torrent of AI debt which might just be bankrolling the end of human civilization — mean global borrowing costs are now their highest since the 2007-08 financial crash.
Not that you'd know it looking at the main world stock indexes. They are less than -2% off all-time highs and up more than +12% for the year, largely thanks to AI euphoria.
Q4 has lots in store.
Peace in the Middle East or Ukraine both look unlikely. Interest rates are expected to keep going up, while the first weekend has what now seems a genuine toss-up of a Brazilian election.
The main event will undoubtedly be November 3's U.S. midterm elections.
Current polls suggest Donald Trump's Republican party could lose the House of Representatives and maybe even the Senate — and that could make for a very interesting end to the year.
(2) On Wednesday, Micron Reports Latest Earnings Results
Earnings from Micron Technology (MU - Free Report) , the $1.2-trillion semiconductor maker, are due after the bell on Wednesday and will provide the next test for an AI trade that has shown signs of fatigue in recent months.
Micron, a key supplier of memory chips used alongside Nvidia's (NVDA - Free Report) AI processors, has been a big beneficiary of the spending splurge on AI data centers, pushing its shares up over +280% year-to-date.
But its shares have fallen by more than -6% during the quarter, while the Philadelphia Semiconductor Index (SOXX - Free Report) , has shed an even steeper -14%, as investors question how long heavy capital spending can continue and whether demand growth can continue at its current pace.
If Micron's guidance surpasses expectations, it could soothe some nerves that AI infrastructure spending is faltering or that memory supply constraints are easing.
Should guidance disappoint, the market might view it as an early sign that the AI spending boom is losing momentum.
(3) On Friday, September U.S. Nonfarm Payrolls Come Out
A fresh look at U.S. employment and inflation trends in the coming week will shed light on the economy's strength and when the Federal Reserve will hike interest rates again.
September's nonfarm payrolls report, due on Friday, is Wall Street's main event, following a blowout report the prior month that helped cement the Fed's first rate hike in three years.
September payrolls are expected to rise by +100K jobs, with the unemployment rate at 4.2%, according to a poll of economists.
Wednesday's release of the monthly Personal Consumption Expenditures (PCE) price index will offer signs about whether persistently high inflation is moving toward the Fed's 2% annual target.
Futures pricing suggests a roughly 50/50 chance that the Fed will again hike by a quarter point in October.
In a survey released this week, a measure of prices paid by businesses for inputs surged to a nearly four-year high.
(4) On Friday, Euro Zone Inflation Data Gets Released
Investors will also get Eurozone inflation data on Friday, as well as price figures from Tokyo that are viewed as a barometer for Japan.
The key question for markets is whether energy price surges have lasted long enough to cause ripple effects across major economies that may push wages, living costs and interest rates higher.
Interest rate markets are already pricing in a faster global tightening cycle than they were just weeks ago, pushing 10-year Treasury yields above 5%.
A yield that stays around its highest since 2007 is something some newer bond and equity investors have never worked with.
Hope that inflationary forces prove to be transient is battling with fears that long-term capital costs of 5% or higher will become the norm.
Current market valuations could struggle.
(5) On Tuesday, the Reserve Bank of Australia (RBA) Likely Hikes Policy Rate
Australia's house prices are falling and the country's jobless rate rose unexpectedly to a five-year high.
That's not the best backdrop against which to be raising interest rates.
Yet a rate hike is what markets, and economists, expect the Reserve Bank of Australia to deliver when it meets on Tuesday. A quarter-point increase would take rates to a 15-year high of 4.6%.
Like most major central banks, the RBA finds itself in a bind as oil prices push back above $100.
Even after three rate increases this year, core inflation is running above the RBA's 2-3% target range. Australia's cash rate is now seen peaking near 5%.
Once upon a time, when house prices fell, rate cuts followed to shore up the economy. That era is likely over.
Zacks #1 Rank (STRONG BUY) Stocks
Next, I picked three Tech Zacks #1 (STRONG BUY) large-cap stocks.
(1) Seagate (STX - Free Report) : This is a $906 a share Computer-Storage stock, with a market cap of $206B
It is found in the Zacks Computer-Integrated Systems industry. The stock holds a Zacks Value score of F, a Zacks Growth score of A, and a Zacks Momentum score of D.
F12M P/E: 25.1.
Image Source: Zacks Investment Research
Seagate is the second-largest manufacturer of hard disk drives (HDDs) in the U.S.
HDDs are used as the primary medium for storing electronic information in systems ranging from desktop computers and consumer electronics to data centers delivering information over corporate networks and the Internet.
Seagate also develops other electronic data storage products such as SSD (solid state drive) and solid-state hybrid drives (SSHD).
The company has an industry-leading vertically-integrated operation with internal control over the majority of its key component suppliers.
The company's HDD products are designed for mission critical and nearline applications in enterprise servers and storage systems; edge compute/client computer applications.
SSD products mainly comprise serial attached SCSI ('SAS') and Non-Volatile Memory Express ('NVMe') SSDs.
Cloud systems and solutions portfolio incorporates modular original equipment manufacturer ('OEM') storage systems and scale-out storage servers.
(2) Hitachi (HTHIY - Free Report) : This is a $35 a share Japanese tech stock, with a market cap of $105.6B
It is found in Zacks Diversified Operations industry. The stock holds a Zacks Value score of C, a Zacks Growth score of D, and a Zacks Momentum score of D.
F12M P/E: 25.6.
Image Source: Zacks Investment Research
Hitachi Ltd., headquartered in Tokyo, is one of the world's leading global electronics companies.
They manufacture and market a wide range of products, including computers, semiconductors, consumer products and power and industrial equipment.
(3) Advantest (ATEYY - Free Report) : This is a $209 a share Electronics Test stock, with a market cap of $153.3B
It is found in the Zacks Electronics-Measuring Instruments industry. The stock holds a Zacks Value score of F, a Zacks Growth score of B, and a Zacks Momentum score of B.
F12M P/E: 32.3.
Image Source: Zacks Investment Research
Advantest Corp. is one of the world's leading automatic test equipment suppliers to the semiconductor industry, and is also a producer of electronic and optoelectronic instruments and systems.
A global company, Advantest has long offered total ATE solutions, and serves the industry in every component of semiconductor test: tester, handler, mechanical and electrical interfaces, and software.
Its logic, memory, mixed-signal and RF testers, and device handlers, are integrated into the most advanced semiconductor fabrication lines in the world.
Key Global Macro
Friday’s U.S. nonfarm payroll data will be the major macro prints.
On Monday, the Reserve Bank of Australia (RBA) kept its policy rate at 4.35%, lower than the 4.60% analysts had been expecting.
On Tuesday, U.S. JOLTS job openings for August come out. The prior July reading showed 7.27M openings.
Australia’s CPI for August comes out. The prior July reading was a hot +3.6% y/y.
On Wednesday, U.S. core PCE for August comes out. Consensus looks for +3.4% y/y, up a notch from July’s +3.3% y/y reading.
On Thursday, the U.S. ISM manufacturing PMI comes out for September. The consensus looks for 54.8, rising a bit from the August 54.6 reading.
On Friday, U.S. nonfarm payrolls for September come out. Consensus looks for +100K in September job additions. The unrevised August reading was +162K.
Consensus looks for a 4.2% household unemployment rate, up from 4.1% in August.
Eurozone core HICP inflation for September likely rises to +2.6% y/y from +2.4% y/y in August. Broad Euro Zone HICP for SEP rises to +3.5 y/y from +3.2% y/y.
Conclusion
On Sept. 23rd, Zacks Research Director Sheraz Mian shared an EPS growth look.
His key points:
(1) Zacks expects total S&P500 earnings in Q3 currently to increase +23.9% from the same period last year, on +11.4% higher revenues.
Zacks expects 14 of the 16 Zacks to enjoy positive earnings growth and 6 sectors producing double-digit growth.
This will be the most broad-based earnings growth performance in recent times.
(2) Zacks sectors expected to enjoy double-digit earnings growth in Q3 are –
(3) Excluding the Tech sector’s substantial contribution?
Q3 earnings for the rest of the S&P 500 index would be up +14.3% (vs. +23.9% otherwise).
Excluding the Energy sector?
The aggregate growth rate would decline to +19.9%. If we excluded both the Tech and Energy sectors, aggregate Q3 earnings growth for the rest of the S&P 500 would be +7.4%.
(4) Micron (MU - Free Report) and Nvidia (NVDA - Free Report) remain material contributors to the Tech sector’s growth picture.
Excluding Nvidia, Micron, and Alphabet (GOOGL - Free Report) , which enjoyed an outsized gain in the preceding period?
Q3 earnings for the rest of the Tech sector would be +20.5% (vs. +41.9% otherwise).
That’s all for this Global Week Ahead.
I wish the best of luck, to all of you, in your trading and investing!
John Blank, PhD.
Zacks Chief Equity Strategist and Economist