Market Pulse with Dan Sheehan

Good morning, and welcome to today's edition of Market Pulse with Dan Sheehan. Before we dive into the market developments, I want to express my deep concern for those affected by Hurricane Milton in Florida. Our thoughts are with the residents facing this dangerous storm, and we hope for their safety and swift recovery in the aftermath.

Yesterday's Market Recap

Wednesday's trading session saw a mixed performance across major indices:

• S&P 500: Rose nearly 1%
• Nasdaq Composite: Climbed about 1.5%
• Dow Jones Industrial Average: Inched up 0.3%

The market's positive performance was driven by growing optimism about a potential "soft landing" for the U.S. economy. Investors seemed to gain confidence that the Federal Reserve might successfully curb inflation without triggering a recession. The tech-heavy Nasdaq's outperformance suggests a particular enthusiasm for growth stocks in this environment.

Breaking News: September CPI and Jobless Claims

This morning's economic data releases have significant implications for the market and monetary policy:

Consumer Price Index (CPI) Hotter Than Expected

The Labor Department's report shows inflation running hotter than anticipated:

• CPI increased 0.2% for September (0.1 percentage point above consensus)
• Annual inflation rate rose to 2.4% (0.1 percentage point above expectations)
• Core CPI (excluding food and energy) increased 0.3% monthly and 3.3% annually
• Energy prices slumped 1.9% over the month
• Shelter and food were major contributors, accounting for over 75% of the monthly increase
• The year-on-year rate for core CPI picked up to 3.3%, the first increase of this magnitude in 18 months

These figures suggest that inflationary pressures remain persistent, which could influence the Federal Reserve's future policy decisions. We will learn more today with the Fed speakers about how they have taken this data. This may see an increase in chance of no rate cut in November, but i still believe they will go 25 bps.

Jobless Claims Spike

Initial jobless claims for the week ending October 5 jumped to 258,000, an increase of 33,000 from the previous week's revised figure. This was above analysts' expectations. However, it's important to note that this spike is likely influenced by Hurricane Milton and other factors, potentially skewing the data.

Market Implications and Fed Watch

The higher-than-expected CPI figures and the jump in jobless claims present a complex picture for investors and policymakers:

1. Inflation Persistence: The uptick in core CPI suggests that inflationary pressures are more stubborn than previously thought, which could lead to a more cautious approach from the Fed regarding future rate cuts.
2. Labor Market Uncertainty: While the jobless claims spike is likely hurricane-related, it adds another layer of complexity to assessing the overall health of the labor market.
3. Fed's Balancing Act: These data points underscore the challenges the Fed faces in balancing inflation control with supporting economic growth.
4. Market Reaction: We may see increased volatility as investors digest these figures and reassess their expectations for future Fed actions.

Fed Meeting Minutes Reveal Split Decision

The Federal Reserve's recently released meeting summary has shed light on the deliberations behind last month's half-point rate cut. Key takeaways include:

• Officials were divided on the size of the cut, balancing inflation confidence against labor market concerns
• Multiple officials favored a smaller rate reduction
• Governor Michelle Bowman's dissenting vote marked the first governor dissent on an interest rate decision since 2005
• The strong September jobs report has reinforced the view that while easing has begun, future cuts may be less aggressive

This insight into the Fed's decision-making process underscores the complex considerations at play as the central bank navigates the current economic landscape.

Delta Air Lines Soars on Optimistic Outlook

Delta Air Lines has provided a boost to the travel sector with its upbeat fourth-quarter guidance:

• Adjusted earnings projected between $1.60 and $1.85 per share, up from $1.28 a year earlier
• Resilient travel demand and strong holiday bookings driving confidence
• CEO Ed Bastian noted a potential 1-point revenue impact due to the upcoming U.S. presidential election

Delta's positive outlook, despite acknowledging some election-related uncertainty, suggests continued strength in consumer discretionary spending, particularly in travel.

Hurricane Milton's Impact

As Hurricane Milton made landfall in Florida last night:

• The storm hit Siesta Key as a Category 3 hurricane, now weakened to Category 1
• Millions were advised to evacuate, with President Biden emphasizing the severity of the threat
• Tornadoes and heavy rain have already caused significant disruptions

The storm's economic impact, particularly on insurance, real estate, and tourism sectors, will be closely watched in the coming days and weeks.

Today's Market Outlook

Given the morning's data releases, we may see a shift in market sentiment. As of early trading:

• S&P 500 futures are down 0.5%
• Nasdaq futures are declining 0.7%
• Dow futures are slipping 0.4%

These movements reflect the market's reaction to the higher-than-expected inflation figures.

Corporate News Roundup

1. AMD's AI Chips: Advanced Micro Devices is expected to announce several new artificial intelligence processors at an event in San Francisco today, challenging Nvidia's dominance in the AI chip market.
2. Berkshire Hathaway's Samurai Bonds: Warren Buffett's conglomerate has raised 281.8 billion yen ($1.9 billion) in a yen-denominated bond offer, potentially signaling increased exposure to Japanese assets.
3. Domino's Pizza Earnings: The company reported a smaller-than-expected rise in third-quarter U.S. same-store sales, reflecting cautious consumer spending on dining out.
4. Google's Nobel Prize Winners: The recent Nobel prizes in chemistry and physics awarded to Google-affiliated AI pioneers have stirred debate over the company's research dominance and recognition in computer science.
5. GSK's Zantac Settlement: The British drugmaker's shares jumped after announcing a $2.2 billion settlement over U.S. lawsuits alleging its discontinued heartburn drug Zantac caused cancer.

Economic Calendar

With the CPI and jobless claims data now released, focus will shift to Fed speakers scheduled for today:

• Lisa Cook, John Williams, and Thomas Barkin are set to speak at various events

Their comments will be closely watched for any hints on how the Fed might interpret today's data.

Looking Ahead

As we navigate today's market, key factors to watch include:

1. Market reaction to the CPI data and its implications for Fed policy
2. Any comments from Fed officials in light of the new economic data
3. Ongoing assessment of Q3 earnings, with focus on consumer spending trends
4. Hurricane Milton's economic impact, particularly on affected sectors
5. Developments in the AI chip market following AMD's expected announcements

At Telos Wealth Advisors, we're closely monitoring these trends to help our clients navigate the complexities of the current market environment. If you have any questions about how these developments might impact your investment strategy, please don't hesitate to reach out to me at [email protected].

Thank you for your continued trust and readership. Stay informed, stay nimble, and let's navigate these markets together.

Best regards,

Dan Sheehan

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