Markets Brief: What to Watch in the October Jobs Report, Fed Meeting
After mixed big technology earnings, focus turns to healthcare and energy Q3 results.
Despite some bad earnings news from the big technology companies, stocks managed to hold their own last week. But coming up this week are two key events—the next Federal Reserve policy-making meeting and the October jobs report—that could have a big influence on investor sentiment.
While markets are expecting yet another big interest-rate increase from the Fed this week, the focus will be on where policy goes from here. And the jobs report could play a key role in shaping that direction. That means a jobs report that shows continued strong hiring could set the stock and bond markets back on their heels.
“For now, the ‘good news is bad news’ regime is still in place,” says Morningstar’s chief economist Preston Caldwell. “If the jobs market is too strong, that’s actually bad news for the markets because it necessitates further interest rate hikes.”
On the other hand, if the market sees signs of cooling in the jobs report—suggesting that the Fed will be able to slow the pace of rate hikes—it could be good for both stocks and bonds.
“If wage growth subdues, and labor force participation ticks up, then fast jobs growth wouldn’t be such a big deal for the markets,” Caldwell says. “It depends on the holistic signs of whether the jobs market is truly overheated or not.”
DexCom (DXCM) rallied after posting third-quarter results showing earnings per share of $0.28, ahead of estimates of $0.24, according to FactSet.
Bread Financial Holdings (BFH), a financial services company, had EPS come in at $2.69, ahead of the $2.52 estimate from FactSet. However, Morningstar equity analyst Michael Miller saw third-quarter results fall within his expectations.
“As we incorporate these results, we are reducing our fair value estimate to $57 per share from $63,” he says. The stock remains undervalued.
Companies that provide equipment for oil and gas producers closed the week higher as earnings results showed that global demand for oil remains strong. ChampionX (CHX) jumped after the firm reported revenue of $1.02 billion, ahead of market expectations of $939 million.
Morningstar equity analyst Katherine Olexa raised her fair value estimate on the stock to $25 from $23 after incorporating the results. Shares of Patterson-UTI Energy (PTEN) also gained after posting earnings.
Disappointing earnings results led to some of the biggest one-day losses seen in years for some of the biggest names in the technology sector. Meta’s (META) stock tumbled 24.56% after it reported results as investors grew alarmed at the firm’s investment plan for the metaverse.
Concerns about a slowdown in advertising spending contributed to the decline in shares. That was a headwind that Alphabet (GOOGL), Google’s parent company, also could not avoid.
“We think expectations of an economic downturn among advertisers is the main culprit,” Morningstar senior equity analyst Ali Mogharabi says. He cut Meta’s fair value estimate to $260 from $340, and lowered Alphabet to $160 from $169.
Amazon.com (AMZN) reported earnings results that showed an acceleration in operating costs, and a deceleration in the growth of its Amazon Web Services business. Morningstar senior equity analyst Dan Romanoff sees that as “our greatest near-term concern.” Romanoff cut his fair value estimate to $150 per share from $192 after reducing his growth and profitability assumptions.
Jakir Hossain has a position in the following securities mentioned above: GOOG, GOOGL. Find out about Morningstar’s editorial policies.