Investing.com -- Stocks rose higher on Friday after an upbeat September jobs report lifted investor confidence in the strength of the economy, with the S&P 500 climbing 0.9% to close at 5,751.07 and the Nasdaq Composite rising 1.22% to 18,137.85. The Dow Jones Industrial Average gained 341.16 points, or 0.81%, setting a new record at 42,352.75.
The rally followed a stronger-than-expected jobs report, as nonfarm payrolls grew by 254,000 in September, surpassing economists' expectations of 150,000. Meanwhile, the unemployment rate dropped to 4.1%, contrary to forecasts that it would remain at 4.2%.
For the week, the S&P 500 finished up 0.22%, the Dow edged up 0.09%, and the Nasdaq posted a 0.1% weekly gain, a sharp rebound after the tech-heavy index started Friday down over 1%.
As for this week, the attention turns to the upcoming CPI on Thursday and PPI on Friday.
With labor market risks diminishing, strategists at Deutsche Bank suggest the two reports “will be somewhat important in terms of maintaining the Fed's confidence that inflation remains on track back to target.”
For CPI, they expect the headline figure to remain stable, forecasting a +0.05% increase compared to the previous +0.19%. Core inflation is anticipated to come in slightly cooler at +0.24% versus last month’s +0.28%.
"Should our expectations hit the mark, the year-over-year growth rate of headline CPI would drop 30bps to 2.3%, while that for core tick down a tenth to 3.2%," the strategists note.
Shorter-term trends in core inflation are also projected to improve, with the six-month annualized rate declining from 2.7% to 2.4%.
Other important updates for this week will feature consumer sentiment, small-business optimism, and the minutes from the Federal Open Market Committee (FOMC) meeting.
Q3 earnings season to begin
The Q3 2024 earnings season begins this week, with major banks like BlackRock (NYSE:BLK), JPMorgan Chase (NYSE:JPM), and Wells Fargo & Company (NYSE:WFC) set to kick off the reporting period on Friday. Prior to these reports, however, investors will first scrutinize the financial results of PepsiCo (NASDAQ:PEP) on Tuesday and Delta Airlines (NYSE:DAL) on Thursday.
Strategists at Evercore ISI believe the S&P 500 earnings per share (EPS) growth is likely to slow somewhat after the rapid growth seen in Q2.
They expect Q3 EPS to grow 6.5% year-over-year, including a modest 2.5% “EPS surprise,” which would be one of the weakest surprises in recent quarters.
“While EPS is expected to slow from 2Q’s torrid pace, a U.S. Election, China stimulus and Middle East conflict continue to emphasize Macro over Micro this Earnings season,” Evercore noted.
The firm expects heightened volatility in October due to rising political uncertainty. It points out that the S&P 500 has declined in each of the past four Presidential Election Octobers, despite historically positive returns in November and December.
During election years, earnings seasons tend to show muted reactions to sales and EPS results, with "double misses" standing out as significant underperformers.
What analysts are saying about US stocks
Bank of America: “This upcoming earnings season is set to be a great environment for stock pickers. The derivatives market is pricing in the biggest post-earnings implied move at the single stock level in our data history since 2021. Interestingly, at the index level, implied volatility on the S&P 500 remains relatively low, suggesting that the real action is going to be more at the single stock level. However, the high implied moves do not preclude value in option trades as each of the last four quarters have actually seen average realized moves higher than implied moves going in.”
Goldman Sachs: “Ahead of 3Q 2024 earnings season, we raise our 2025 S&P 500 EPS forecast to $268 (+11% year/year) from $256 (+6%) and introduce a 2026 EPS estimate of $288 (+7%).”
“Today’s P/E multiple of 22x is in line with our macro model of fair value. We forecast the P/E will be unchanged at year-end 2024 and lift our index target to 6000 (from 5600) and our 12-month target to 6300 (from 6000), implying 4% and 10% upside, respectively.”
Morgan Stanley: “Friday's strong jobs data and our economists' call for a series of 25bp rate cuts from here lead us to upgrade cyclicals to overweight relative to defensives. At the sector level, we make several changes to reflect this shift: upgrade Financials to overweight, downgrade Health Care to neutral, and downgrade Staples to underweight. We retain our overweight in Utilities as a defensive hedge with secular growth exposure.”
BTIG: “After some early-month volatility, bulls held the primary breakout on SPX in the 5670-5700 zone. While we still see decent odds for a ‘Red October’, unless bears can break back under 5670, it’s hard to be aggressively bearish. On the other hand, given the strong eco data last week, the SPX still couldn’t make a new high. We don’t see a runaway move to the upside ahead of the election, and therefore it looks to be running in place.”