The stock market may experience volatility this week. We anticipate strong performance from stock indices on Monday, largely due to third-quarter end window dressing. However, the initial days of October may bring weaker performance. In this article, I analyze the key macroeconomic drivers influencing the market this week, providing insights on what to expect and how to trade during this period. Moreover, I highlight top stock picks and exciting investment ideas for the week.

Key macroeconomic events to watch this week

Chinese PMI for September

According to a Reuters poll of 22 economists, the market consensus for the Chinese PMI in September 2024, which will be released on Monday, September 30, 2024, is 49.5. This is higher than the August reading of 49.1. We believe a weak PMI reading could reinforce the need for stimulative measures and potentially lead to additional support. On the other hand, a strong PMI reading could suggest that the current stimulus has a positive effect and may reduce the need for further measures.

In terms of stock market performance, the PMI data can have both direct and indirect impacts:

• Indirect Impact:The PMI data can influence the overall economic outlook, which can impact global stock markets. A strong reading can support risk appetite and boost global equities, while a weak reading can lead to risk aversion and a pullback in markets.
• Direct Impact:A strong PMI reading can boost investor sentiment towards Chinese equities and industries closely tied to the manufacturing sector. Conversely, a weak reading can lead to a sell-off.
• The Chinese PMI of 49.8 as of September 30, 2024, indicates that the country’s manufacturing activity is still in contraction mode. However, the index did nudge up from 49.1 in August and was higher than the consensus forecast. This reading marked the highest point in the recent five months and ended a two-month decline, according to the National Bureau of Statistics.

Federal Reserve’s Chair Mr. Powell speech

The market eagerly anticipates Fed Chair Jerome Powell’s speech on Monday, September 30, 2024, and later this week. Investors are particularly focused on potential signals regarding future interest rate cuts. Given recent trends, Powell is strongly expected to hint at rate cuts continuing through November and December. This is mainly due to the Fed’s ongoing efforts to balance inflation control with maintaining a strong labor market. Currently, the probability of a 50 basis points (bps) interest rate cut by the Federal Reserve in November 2024 is around 36%. The market also considers a 64% chance of a smaller 25 bps cut at the same meeting.

In our view, the interest rate decision and the probability of a higher interest rate cut will mainly depend on jobs reports (e.g., the JOLT jobs opening report, which will be released on Tuesday, October 1, and the initial jobless claims report, which is scheduled for release on Tuesday, October 3). In addition, with the upcoming U.S. elections in November, we may see political pressure to boost the economy through more aggressive rate cuts.

European CPI for September

The data should be released on Tuesday, October 1. The CPI is widely expected to decline to 1.9% from 2.2% the previous month.

JOLT job openings

The JOLT job openings report, officially known as the Job Openings and Labor Turnover Survey (JOLTS), is a monthly survey released by the Bureau of Labor Statistics that provides data on job openings, hires, and separations (BLS). The report tracks nonfarm job openings, voluntary quits, hiring, and layoffs, offering insights into labor market trends (Macromicro). It’s considered a key indicator of employment conditions and is closely watched by economists and financial analysts. The current expectation is that the job openings will decrease to 7.640 M from the previous 7.673 M. However, we could expect a mixed market reaction because the focus of investors will be turned to the FOMC meeting and any hints about the size of the interest rate cut in November.

Initial jobless Claims

On Thursday the U.S. initial jobless claims should be released. The current market consensus is that the claims should increase to 221,000 from 218,000.

In general, the stock market reaction to jobless claims data can depend on various factors, including the state of the economy, the trend in jobless claims, and how the data compares to expectations.If initial jobless claims increaseby more than 221,000, we would expect a negative reaction. This is because higher jobless claims can be a sign of a weakening labor market and potentially slowing economy, which can be bad news for stocks.

If the claims are lower than expected:The market may react positively to this news.

Earnings for the week

Monday: CCL

Tuesday: PAYX, AYI, UNFI

Wednesday: NKE, CALM, CAG, LEVI

Thursday: STZ

Friday: APOG

Which company we will be watching:

This Week is the final week of the previous quarter’s reporting season. Companies in the consumer non-cyclical industry will mainly report their earnings results. Among the reports this week, we could highlight Nike (NKE). The company should release its fiscal Q1 2025 financial results after the market closes. The company’s ES is expected to drop to $0.52 from $0.76, as reported in Q1 2024. NKE revenue is forecasted to be $11.65 billion, which is a decline of 10% YoY from Q1 2024 to Q1 2025. Currently, the company has a BUY rating with a target price of $92.5, which implies a 9.5% upside potential. The stock trades at a P/E of 24.00x, above its peer group average of 21.64x. On the P/Sales ratio, NKE also looks fairly priced: it trades at a P/Sales of 2.64x compared to the 2.72x peer group average. During the past few quarters, Nike Inc. has struggled with increased competition. However, the company will get a new CEO, Elliott Hill, starting October 14. We believe the new CEO will announce a new development strategy to enhance Nike’s competitiveness. This could be a positive trigger going into the fourth quarter of 2024.  Hill has a long history with Nike, starting as an intern in 1988 and working his way up through various roles over the years. He previously served as President of Consumer and Marketplace before retiring in 2020. Hill’s journey from intern to CEO is inspiring and highlights his dedication and loyalty to the company.

Elliott Hill has several key goals for Nike as he steps into the role of CEO:

• Sustainability and Innovation: Continuing Nike’s commitment to sustainability, Hill is expected to push for more eco-friendly products and practices. Product design and technology innovation will also be a priority to maintain Nike’s competitive edge.
• Cost Reduction and Efficiency: Nike has been executing a plan to save $2 billion over three years, which includes layoffs and other cost-cutting measures. Hill aims to continue this strategy to streamline operations and reinvest the savings into growth areas.
• Focus on Growth Areas: Hill plans to reinvest savings into significant growth areas such as sport, health, and wellness. This aligns with Nike’s broader strategy to capitalize on the increasing global interest in fitness and well-being.
• Strengthening Consumer Connections: Hill has a strong consumer and marketplace roles background. He aims to enhance Nike’s direct-to-consumer business and deepen customer connections through personalized experiences and innovative marketing.

From the technical trading perspective, we see Nike as attractive idea for a swing trade. We could also recommend investors to watch for attractive entry range between $75 and $85, as we foresee more positive developments at Nike going into the last quarter of 2024. We anticipate that the new CEO will make several positive announcements in October-November 2024. Approaching holiday season usually plays good for consumer stocks, while the interest rate cuts due in November, December will provide additional positive momentum for the stocks.

October Effect

October is often associated with stock market volatility, but its overall performance is mixed. The term“October effect”refers to the belief that stocks tend to decline during this month, and it’s considered more of a psychological expectation than a consistent historical trend. According toForbes, despite its crash-prone reputation, October has averaged a 0.6% price gain from 1928 through 2022.

However, October is known for its volatility. The S&P 500’s average volatility in October has been 35% higher than the average for the remaining 11 months of the year. Additionally, there are more 1% or larger swings in October in the S&P 500 than in any other month in history, dating back to 1950, according toInvestopedia.

Historically, October typically starts weakly, with markets declining through the seventh or eighth trading day before trending upward. Notable exceptions include Black Monday, October 28, 1929, when the Dow Jones Industrial Average fell nearly 13%, and October 2022, when the S&P 500 increased by +8.1%.

In our view, while October is associated with volatility and has seen some significant crashes, its average long-term performance is positive. The month often starts weak but trends upward later in the month. During this “Weakness Window,” investors could pick up some promising strong momentum stocks.

Profit warnings

EU Companies

• Volkswagen: Europe’s biggest automaker issued its second profit warning in three months, citing weak demand and fading relevance in China (Bloomberg).
• Stellantis: The French-Italian automaker revised its guidance downward, citing performance issues and industry dynamics. The parent company of brands like Jeep, Fiat, and Peugeot cut its annual profit guidance. It now expects an adjusted operating income margin between 5.5% and 7.0% for the full-year 2024 period, down from a “double-digit” outlook.
• Aston Martin: The luxury carmaker also issued a profit warning as the industry is hammered by competition.

USA Companies

• Skechers: earlier in September the sneaker maker revealed that its China’s business experiencing difficulties due to weak demand.

Profit warnings can create a ripple effect in the stock market, influencing both short-term trading and long-term investment strategies. We anticipate that the automotive manufacturing industry and the textile and apparel goods sector may see weakness in the next few days. To summarize the above, we recommend that investors stay cautious this week. It is better to take a wait-and-see approach while keeping exposure to value and growth stocks with attractive fundamental value and solid earnings prospects.

Our view on Stock Indices

Last week, the S&P500 Index reached a new high of 5,764, but the bullish move failed on Friday, and we saw some selling pressure. As we mentioned above, we expect higher volatility and rather negative movement in the Index for this week. This is partly due to theOctober Effect. In addition, the technical analysis indicated a relatively high probability of some short-term correction. We are watching the critical level around 5,700.

Looking at the Nasdaq Index, we see some volatility, with a slight tilt towards cautious trading due to mixed signals. Currently, we see cautious optimism on the market. However, we believe some short-term corrections are due. Investors should watch for critical levels. If the Index moves below 20,000, we may see one leg more down this week. For the continuation of the upside move, we will watch the level around 20,400 in the mid-term.

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