Earnings, Fed Decision, Jobs Data Are Key This Week. One Thing’s More Important.

Earnings will be torrential, with about 150 S&P 500 companies due to report this week. Highlights include
McDonald’s
, AMD, Apple, and Eli Lilly. The story so far seems to be that even though companies seem to be doing alright, and economic growth was strong in the third quarter, investors aren’t happy. The S&P 500 entered a correction last week, as measured by a 10% drop from its peak. The Dow Jones Industrial Average is at its lowest since March.

That opens the question of what’s really driving stocks these days. The most reliable correlation of late seems to be that as bond yields go higher, stocks go down as well. And with the 10-year yield already around 5%, the next question is whether bond yields will continue to rise.

There are certainly a handful of people who are saying bonds are now oversold–hedge fund manager Bill Ackman and Pimco, the world’s biggest bond fund, are among them. The 5% coupon alone, a guaranteed return, could make them worth buying, even if worries about government spending persist.

But if the big players are ready to get back into bonds, and the correlation between stocks and bonds rising and falling in tandem holds, the outlook for stocks could be getting brighter.

—Brian Swint

*** Join Barron’s senior managing editor Lauren R. Rublin and deputy editor Ben Levisohn today at noon when they speak with Barry Knapp, managing partner of Ironsides Macroeconomics, on the outlook for financial markets, industry sectors, and individual stocks. Sign up here.

As Fed’s Rate Decision Looms, It Examines Old Model

The Federal Reserve is expected to hold interest rates steady at its two-day meeting that starts on Tuesday, extending the pause that began after the last rate hike in July. Officials are signaling they’d like to stay on the sidelines but could keep a December rate increase in the cards.

• Fed officials are debating whether their old model is still valid, The Wall Street Journal reported. Recent strong reports on the economy and the job market show two phenomena going on simultaneously: strengthening activity and slowing inflation.

• Third-quarter economic output accelerated to a 4.9% annual rate, while September inflation data wasn’t as sunny as prior reports over the summer. Still the Fed can hold rates steady because earlier rate increases are starting to be felt by consumers and businesses.

• The Fed will be closely watching the labor market. If demand really is ahead of potential, a tight labor market would make for inflationary wage gains, the Journal reported. Job openings for September are expected to be 9.5 million, down slightly from the prior reading.

• The ADP private payroll report for October on Wednesday is expected to say companies added 142,500 jobs, up from 89,000 in the prior reading. The government’s nonfarm payrolls on Friday are expected to come in around 192,000 for October, down from 336,000 the prior month.

What’s Next: The Fed will release its interest rate policy decision on Wednesday at 2 p.m. Eastern time. While a pause is largely expected, focus will turn to Chair Jerome Powell’s comments and any clues as to whether another rate hike may still be on the table.

—Liz Moyer

***

Apple, AMD, Qualcomm Earnings Highlight Tech Demand

All eyes are on
Apple,
which reports earnings this week amid interest in how well consumer demand will drive sales of its thousand-dollar iPhone 15s. J.P. Morgan analysts recently noted signs that demand for the iPhone 15 is weaker than it was for its predecessor at this time last year.

• Apple is expected to report September-quarter sales of $89.3 billion, down from $90.1 billion in the same quarter last year, according to analysts tracked by FactSet, the fourth straight quarter of decline from the year-ago period. Sales of iPhones are expected to be $43.8 billion.

• Apple, which makes more than half its revenue overseas, could also show currency-exchange effects, given the strong U.S. dollar, said FactSet senior earnings analyst John Butters. Companies with higher international exposure are reporting lower profit and revenue than S&P firms with mostly domestic business, he said.

• Separately,
  Qualcomm,
  reporting Wednesday, has a new chip supply agreement with Apple that covers all iPhones through 2026. An existing deal was to end with the 2024 iPhone launch. Qualcomm also has a new processor coming in 2024 that will compete with
  Intel
  and Advanced Micro Devices.

• AMD
  reports earnings Tuesday. Piper Sandler analyst Harsh Kumar said Intel’s comments about healthy inventory levels for consumer and enterprise PCs could be bullish for AMD as the only other major participant in the PC market, and Intel’s optimism about AI chips demand “bodes well for AMD’s upcoming MI300 launch.”

What’s Next: A weak report from Apple, whose market cap accounts for about 7% of the aggregate value of the S&P 500, could be a worrisome sign. Fellow tech titan
Microsoft
is now threatening Apple’s title as the world’s most valuable company—the gap is about $180 billion.

—Janet H. Cho, Eric J. Savitz, and Tae Kim