Market Pulse with Dan Sheehan

Good morning, and welcome to today's edition of Market Pulse with Dan Sheehan. Let's dive into the market's current positioning and yesterday's developments.

Today's Futures: A Bounce Back in Sight

After Monday's selloff, futures are pointing to a recovery at the open:

• Dow Futures: Up 75 points (0.18%), implying an open 77.14 points higher
• S&P 500 Futures: Up 24.75 points (0.43%), suggesting an open 26.86 points higher
• NASDAQ Futures: Up 104.25 points (0.52%), indicating an open 111.49 points higher

This rebound comes as investors await key inflation data later this week, which could provide insights into the Federal Reserve's interest rate path. The start of the third-quarter earnings season is also on traders' radars.

Internationally, Chinese stocks surged but pared some gains as government stimulus plans failed to fully reassure investors. European markets are seeing pressure, particularly in mining and luxury stocks.

In the currency markets, the dollar has eased from seven-week highs, while oil's recent rally has paused as markets await Israel's response to last week's Iranian rocket attacks. Gold prices continue to decline.

Monday's Market Recap: A Day of Declines

Yesterday's trading session saw significant pressure across major indices:

• Dow Jones Industrial Average: Fell nearly 400 points, or 0.94%
• S&P 500: Declined 0.96%
• Nasdaq Composite: Led losses with a 1.18% drop

This broad-based selloff reflected growing investor anxiety, with technology and growth stocks bearing the brunt of the decline.

Sector Performance and Market Internals

Drilling down into sector performance reveals a nuanced picture:

1. Energy: Outperformed, buoyed by rising oil prices
2. Financials: Showed relative strength, benefiting from higher interest rates
3. Technology: Underperformed due to rising yields compressing valuation multiples
4. Consumer Discretionary: Weakened on concerns about higher oil prices impacting consumer spending
5. Utilities and Real Estate: Faced headwinds from rising yields

Market internals painted a picture of broad-based weakness:

• Declining issues outnumbered advancers by nearly 3-to-1 on the NYSE
• The VIX "fear gauge" spiked above 18, its highest level in over a month

This deterioration in market breadth, coupled with rising volatility, suggests growing investor unease about the near-term outlook.

Key Factors to Watch

As we navigate today's session, keep an eye on:

1. Fed Speakers: Several officials, including Raphael Bostic, Susan Collins, and Philip Jefferson, are set to speak today.
2. Economic Data: August's international trade balance figures are due.
3. Hurricane Milton: Markets are assessing potential impacts from this Category 4 storm.
4. Earnings: As we enter Q3 reporting season, any early releases or pre-announcements could sway sentiment.

PepsiCo Earnings: A Mixed Bag

This morning, PepsiCo kicked off the unofficial start of the Q3 earnings season with a report that sent mixed signals:

• Earnings per share: $2.31 adjusted vs. $2.29 expected
• Revenue: $23.32 billion vs. $23.76 billion expected

The company lowered its full-year outlook for organic revenue growth to low-single-digits, down from its prior forecast of 4%. This marks PepsiCo's second straight quarter of weaker-than-expected sales.

Key factors impacting performance:

1. Repercussions from Quaker Foods North America recalls
2. Weakening demand in the U.S. market
3. Business disruptions in some international markets

Volume for both food and beverage divisions declined 2%, with Quaker Foods North America seeing a steep 13% drop in volume. The Latin America and Africa, Middle East and South Asia markets also reported shrinking volume for both food and drinks.

PepsiCo's report could signal broader challenges in the consumer goods sector as we move into the holiday season. Investors will be watching closely to see if these trends are reflected in other consumer-focused companies' earnings.

Earnings on Deck

As we progress through the week, several key earnings reports are on the horizon:

• Thursday: Delta Air Lines (before the bell)
• Friday: JPMorgan Chase and Wells Fargo (both before the bell)

These reports will provide crucial insights into various sectors of the economy. The airlines will offer a window into consumer travel trends and business travel recovery, while the banks will shed light on the health of consumer and commercial lending, as well as the impact of recent interest rate movements on their operations.

Bank Earnings: What to Watch

With major bank earnings just around the corner, several key themes are emerging:

1. Soft Landing Potential: A soft-landing scenario could trigger a rebound in customer activity, improve loan growth, and potentially drive higher price-to-earnings (P/E) multiples for the sector.
2. Net Interest Income: With the recent rise in long-term yields, pay attention to banks' outlooks for net interest income and net interest margins.
3. Credit Quality: Given economic uncertainties, investors will be keenly focused on any signs of deterioration in credit quality or increases in loan loss provisions.
4. Investment Banking Activity: Look for commentary on the state of mergers and acquisitions (M&A) and initial public offering (IPO) pipelines.
5. Regulatory Environment: Any insights on the impact of recent or potential regulatory changes will be closely scrutinized.

However, it's important to note that macro uncertainties, including potential Fed policy shifts and the upcoming U.S. elections, are tempering enthusiasm for the sector. These factors could influence banks' forward guidance and investor sentiment.

Looking Ahead

As we navigate the rest of the week, keep an eye on these key events and themes:

1. Ongoing geopolitical developments, particularly in the Middle East
2. Thursday's Consumer Price Index (CPI) report for fresh insights on inflation trends
3. Reaction to earnings reports, especially forward guidance
4. Any shifts in Federal Reserve rhetoric following last week's strong jobs report

At Telos Wealth Advisors, we're closely monitoring these developments to help our clients navigate the complexities of the current market environment. If you have any questions about how these trends 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. Here's to a week of informed decision-making in the markets.

Best regards,

Dan Sheehan

Telos Wealth Advisors