The Fed, earnings, jobs and China: How we think about this week's deluge of data

Published Fri, Nov 4 20224:23 PM EDT

All the major averages closed lower for the week as investors digested another batch of earnings, the Federal Reserve turned hawkish after another rate hike, and new data shows the job market remains stubbornly resilient. While the rate hike was expected, some of the more overly optimistic investors had been hoping for a more dovish tone from the Fed. The statement released by the central bank did provide some hope for a pivot in the near future, but Jerome Powell's press conference on Wednesday quickly put that notion to bed, with the Fed chair saying "it is very premature to be thinking about pausing." He added: "People when they hear 'lags' think about a pause. It is very premature, in my view, to think about or be talking about pausing our rate hikes. We have a ways to go." Friday's nonfarm payroll report may drive home Powell's point as we added more jobs than expected in October, though the unemployment rate did tick higher — a positive from the Fed's perspective. We also got a bit of a market rebound on Friday following news that China could finally be ready to allow the use of BioNTech's Covid-19 vaccine for foreigners, providing optimism that the government will one day allow use of Western MRNA vaccinations for its citizens. The news sent those stocks reliant on China for growth — Starbucks, Estee Lauder and Wynn Resorts, among many others — higher. It also pushed oil prices higher since China coming fully back online would result in more demand for a commodity that remains supply constrained. If China does reopen while Russia remains at war with Ukraine, it could prove something of a double-edged sword: good for companies with exposure to Chinese markets; bad for tamping down inflation, as China would represent a major buyer coming back into the oil market to move prices higher. (It would, however, help energy stocks.) It illustrates what a dynamic, interconnected environment we're trying to navigate. Bad news could be good news. For example, economic weakness means the Fed is further along in its battle against inflation. Or bad news could just be bad news if weak data signals a recession ahead. And good news could be good news: for example, if China reopens and U.S. companies exposed to the region see a boost in demand. Finally, good news could be bad news if it means a second wind for inflation. Following all that? In the end, while we always do our best to steer through this incredibly dynamic market, the one conclusion we feel certain of is maintaining a balanced, well-diversified portfolio. Though nothing is bulletproof, especially in market that is seeing stocks and bonds decline at the same time — along with buying power — a well-rounded portfolio will allow you to realize profits as sectors come into favor. It will also help you redeploy funds into names that have gotten too beaten down, despite a bright longer-term outlook once the current headwinds turn to tailwinds. Under the hood, energy led to the upside followed by materials and industrials while communication services led to the downside followed by technology and consumer discretionary.. Meanwhile, the U.S. dollar index remains around the 110 level. Gold advanced to around the $1,680 per ounce level. WTI crude prices advanced back to the low-$90s following news that China will allow BioNtech Covid-19 vaccine for foreigners and the yield on the 10-year Treasury is holding at about 4.2%. Looking back This week we received earnings results from Eli Lilly (LLY), Advanced Micro Devices (AMD), Devon Energy (DVN), Humana (HUM), Estee Lauder (EL), Qualcomm (QCOM), Bausch Health Companies (BHC), Starbucks (SBUX) and Coterra Energy (CTRA). In macroeconomic news, on Tuesday the ISM Manufacturing index came in at 50.2% for the month of October, slightly ahead of estimates of 50%. For those unfamiliar with the index, a reading above 50% indicates that the manufacturing economy is generally expanding, whereas a reading below 50% indicates that it is contracting. On Wednesday, payroll processing firm ADP reported that companies added 239,000 positions in October, ahead of the 195,000 estimate. Also on Wednesday, the Federal Reserve hiked the overnight rate by 75 basis points, a move in line with expectations. On Thursday, initial jobless claims for the week ending Oct. 29 came in at 217,000, a decrease of 1,000 from the prior week and below expectations of 220,000. Also Thursday, the ISM Services index came in at 54.4%, below expectations of 55.2%. We also received factory orders on Thursday, which pointed to a 0.3% monthly advance in September, in line with expectations. Finally, on Friday, we learned that nonfarm payrolls grew by 261,000 in October, better than the 205,000 estimate. What's ahead More earnings reports: Within the portfolio, we will hear from Disney (DIS) on Tuesday after the closing bell, and from Wynn Resorts (WYNN) on Wednesday after the bell. Here are some other financial reports and economic numbers to watch in the week ahead: Monday, November 7 Before the bell: Affiliated Managers (AMG), Alpha Metallurgical (AMR), BioNTech (BNtX), Blue Apron (APRN), Centerra Gold (CGAU), Choice Hotels (CHH), Cronos (CRON), Delek US (DK), NiSource (NI), Palantir (PLTR), TreeHouse (THS), Viatris (VTRS) After the bell: 23andMe (ME), 2U (TWOU), Activision (ATVI), American States Water (AWR), AppHarvest (APPH), Brighthouse Fin (BHF), Cabot Corp (CBT), Clover Health (CLOV), IFF (IFF), SolarEdge (SEDG), Take-Two (TTWO) Tuesday, November 8 Before the bell: Beauty Health (SKIN), Builders FirstSource (BLDR), Carlyle Group (CG), CNH Industrial (CNHI), Elanco Animal (ELAN), Global Foundries (GFS), Expeditors Intl (EXPD), Hain Celestial (HAIN), PerkinElmer (PKI), Planet Fitness (PLNT) After the bell: Affirm Holdings (AFRM), Akamai Tech (AKAM), AMC Ent (AMC), Axon (AXON), Avid Tech (AVID), Blink (BLNK), GXO Logi (GXO), IAC (IAC), Invitae (NVTA), Lucid (LCID), Novavax (NVAX), Occidental Petro (OXY), Plug Power (PLUG) Wednesday, November 9 Before the bell: Canopy (CGC), Fiverr (FVRR), HanesBrands (HBI), Hilton Grand (HGV), Ionis Pharma (IONS), Roblox (RBLX), Starwood Prop (STWD), Trade Desk (TTD), Wolverine World Wide (WWW) After the bell: AppLovin (APP), Arena Group (AREN), Brf-Brasil Foods (BRFS), Coupang (CPNG), Genpact (G), Kinross Gold (KGC), Manulife Fin (MFC), Rackspace (RXT) Thursday, November 10 Before the bell: AstraZeneca (AZN), Becton Dickinson (BDX), Brookfield Asset Mgmt (BAM), Tapestry (TPR), Utz (UTZ), Six Flags (SIX), WestRock (WRK), Yeti (YETI) After the bell: Compass (COMP), Endeavor Group (EDR), Flowers Foods (FLO), LegalZoom (LZ), Matterport (MTTR), Poshmark (POSH), Toast (TOST) 8:30 a.m. ET: Initial Jobless Claims 8:30 a.m. ET: Consumer Price Index (See here for a full list of the stocks in Jim Cramer's Charitable Trust.) 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Staff members work at a service point to provide water and food for Foxconn employees before their departure on October 30, 2022 in Zhengzhou, Henan Province of China.

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