What Scares Us About Markets and the Economy

Jeff Buchbinder:

Hello everyone and welcome to the LPL Market Signals Podcast. Jeff Buchbinder here, your host for this week with my friend and colleague, Adam Turnquist. We have a great show plan for you today. A lot of great content, certainly. We'll talk a little bit about the election, but I'm interested in what Adam has to say about the charts and what, well, our Weekly Market Commentary this week is about what scares us. So we're going to talk about some things that worry us about the markets and the economy, and that will more than fill the time. So first let me just say that it is Monday, October 28, 2024 as we are recording this. The agenda is as follows. I just alluded to some of it. We'll recap the week in the markets last week where the S&P 500 win streak ended, but the Nasdaq kept its streak going. Nasdaq now up seven straight weeks. There's your Halloween agenda item number two. Number three, the chart check with Adam, where your headline, hey, I guess this is scary too, risk of some short-term pain ahead of long-term gains

Adam Turnquist:

A little bit. Yeah.

Jeff Buchbinder:

Yeah, a little bit. So we're scaring you with the two agenda items, I guess you could say. And then close it out with a preview of the week ahead, which is a huge week of economic data, and it's the busiest week of earning season. So, starting with a recap of last week here, you see the S&P 500 down 1%. But the Nasdaq eked out a small gain. It certainly was not risk on, even though the Nasdaq was up a little bit because the Russell 2000 was down 3%, the small cap index. I guess consumer discretionary is connected to Nasdaq because Tesla was a huge winner, and that was the biggest reason why the Nasdaq was up. It was certainly the biggest reason why consumer discretionary was up last week. Tech was up marginally, and that was it. Everything else down. So Adam, what were your observations last week in terms of what worked and what didn't?

Adam Turnquist:

Kind of a story of have and have nots. As you highlighted tech outperforming a little bit. If you take out Tesla, which had a huge week coming out out earnings, Nvidia, and then Microsoft, the S&P would actually be down another half a percent. So those three stocks helped absorb some of the selling pressure, but kind of a mixed bag overall at the sector level. We did see healthcare start to trade lower on some of the earnings and Medicare Medicaid news out of some of the provider space. Materials moving lower as well. We had a decent little relief rally in the space, but that came unwound a little bit last week. And then on the growth value, there's been excitement around value kind of outperforming on the back of this soft landing narrative. And that reversed a little bit last week. You could see value underperforming as the narrative maybe shifted a little bit to this no landing scenario, we'll probably talk about during today's call. But an interesting week. Volume, pretty below average. Declines, outpaced advancers on the S&P by just over two to one. So definitely a risk-off type of week.

Jeff Buchbinder:

Yeah, no doubt. And with rates moving higher, you had a little bit of weakness in the interest rate sensitives, which of course are on the value side. Then as you alluded to, the soft landing narrative really didn't help cyclical value. You know, most of those areas, certainly down more than the market, industrials in particular, but also materials and just made for a very tough week for value certainly. We did have, you know, I guess a little bit of underperformance internationally but not much. Certainly there's some election risks seeping in there. So Adam, you know, because we had the seven-week winning streak on the Nasdaq, you took a look at what happens next historically, at least. So what do you see here?

Adam Turnquist:

So we look back to the history of the Nasdaq composite. Go back to the early seventies to find how many seven week winning streaks there's been, and there's actually been 37 during that period. So they occur in about 8% of all seven week periods. And if you look at forward returns after those seven week winning streaks, a week later, the Nasdaq tends to be up on average 1%. But it gets pretty interesting when you look out at that kind of six to 12 month timeframe, with the 12 month notably up 16% on average, 86% of those 37 other periods were higher as well. So more evidence that momentum begets momentum. And we look at the overall just 12 month average return for the Nasdaq. Just to give some context, it's around 12 to 13% throughout that period. So these are above average games, really across each timeframe that we analyze.

Jeff Buchbinder:

Yeah, pretty bullish. No doubt. And you didn't double count, right? So you took out, if a seven week win streak goes to 8, 9, 10, that's just counting as one streak, right?

Adam Turnquist:

Exclusive seven week. Yep.

Jeff Buchbinder:

Beautiful. So that's, that's really pure no no data mining there. So turning to the bond market and commodities and currencies, and I think you know, this is probably the most important thing for markets right now, at least ahead of the election and ahead of this big wave of earnings, is where are rates going to settle, right? So we had the big move higher in the 10-year yield over the past week. That led to a nearly 1% decline in the Bloomberg Bond index. And you see pretty much across the board all areas, all segments of the bond market were down probably commodities is interesting enough to highlight. You know, we're getting into that period where, you know, it's winter heating season. So I think that was probably part of why natural gas went up. But also you had energy up in advance of the Israeli retaliation which we saw over the weekend. Of course now because that didn't disrupt its Iranian oil production facilities,

Jeff Buchbinder:

oil is down sharply today. So, you know, you had a little bit of outperformance last week in energy. You probably have a little bit of underperformance this week, although certainly the week is far from over. Other than that, on this page, I think the dollars worth highlighting, we had, you know, a bounce in the dollar. Typically if rates go up you're going to see the dollar react to that because you know, global money chases those higher yields. And then there's a little bit of maybe safe haven trade into the dollar I would say, Adam, because I mean, equities are down worried about geopolitics. It wasn't the economy. I mean, the economy's doing just fine. All the data last week, pretty much without fail was consistent with this soft landing narrative. So you know, it's hard to get too worried about markets here, you know, unless you have a thesis that the election is going to drive some selling pressure. What do you think?

Adam Turnquist:

Yeah, I think the election definitely could create some volatility. Of course, how the election outcome and when we get the results could be a big factor there. When you look at the dollar as well, clearing 104. That was a huge hurdle for the dollar index to clear. You have the 200 day moving average there and some prior lows. So that does open the door for a retest of the upper-end of the range. Call that kind of 106, 107. So maybe three points or two to three points from here in terms of upside, but likely range bound. I don't expect to see the dollar breaking out above those levels, just given the interest rate backdrop. And then turning to crude oil. You talked about prices moving lower, that risk premium coming out of oil as Israel did not hit the OPEC production in Iran. And it's been a story of nothing good happens below the 200 day moving average. We've had these fits and starts in relief rallies and crude oil as geopolitical risks escalate and then deescalate. And that's really been driving this kind of downtrend in the WTI futures market. More evidence of weakness there, that in today's price action with kind of support coming in around 67, but likely another more of a range-bound type of market just given the variance in supply and demand and some of the, I guess, inconsistencies we'll see on the demand side and WTI or global oil for that matter.

Jeff Buchbinder:

Yeah, maybe a little bit of support and oil from the China stimulus story over the last month, but it's not really sticking. We're at 67 today, so thanks for that, Adam. Let's keep moving. The Weekly Market Commentary is about what scares us. So we have, I think it's six items on this list of what scares us. Certainly it's not an exhaustive list, but you know, essentially we went around to each subject matter expert on the Research team and asked them for one or maybe two things that scared them. And so here's the the collection. So we'll start with this. This is a survey by the Fed where they ask if you're going to be, if you're more or less likely to be unable to make your next debt payment in the next three months.

Jeff Buchbinder:

And they segment this by income. So we just pulled out the survey results for the over 100,000 in annual income cohort. And you see here this number went up over 8%. That is the highest in a decade. It's still low, right? It's less than 9% is still low. Obviously the majority of upper-income consumers can make their debt payments. But just on a relative basis, and we're well past the post covid period this is just something to think about the the upper-income consumer has really been our anchor, right? It's really been kind of driving this economy coming out of Covid. And certainly we expect that to continue to be the case, but this is just a small crack in that story and something we'll have to watch. We're also seeing increase in delinquencies for credit cards and auto loans and things like that, even in totality, right?

Jeff Buchbinder:

If you just look at the national statistics for all income levels, you see a little bit of an uptick in those statistics. More folks, you know, falling behind. Still low numbers. Not anywhere near recession levels but small cracks. So next, I'll bring you in for this one, Adam. Certainly a topic we've talked a lot about, which is the massive pile of U.S. debt and the deficit is large and getting larger, especially given our two presidential candidates have no you know, no intention of cutting spending or, you know, raising taxes in any meaningful way that would address the the deficit problem. So what do you think, what's the story here? How scary is this?

Adam Turnquist:

Pretty scary. I used to joke around when doing presentations if, and look at the, the CBO reports that come out. I used to label them as good material to read before bed because it would put you to sleep. But now it gives you nightmares when you start reading some of these predictions in terms of, or their forecasts, for the actual budget deficit, because there's really no end in sight. And as you mentioned, politicians really not talking about it, especially ahead of an election. Not a popular topic to discuss among either Democrats or Republicans. So I think it's going to be a kick the can type of concern. It's not an issue this year, but it will become a growing concern going into next year. I think in much more topical, I think the news surrounding some of the Treasury auctions has increased in terms of it's a good gauge in terms of buyer demand, especially foreign demand coming into the market. I think that's going to be a popular data point next year when we're trying to really understand what the market appetite is for especially longer duration type Treasuries at those auctions. So definitely a spooky one. I think when you look at some of these numbers that we outlined,

Jeff Buchbinder:

We will be haunted with this story for a while, no doubt. So this charge just shows the interest costs. You probably heard, you know, Elon Musk and others talk about how the cost to service the debt. So the interest payments on the debt now are bigger than our defense budget. That is jarring, frankly, to hear, especially given how scary the world is. A lot of bad folks out there. And we need to protect ourselves and help protect our allies. So this is going to have to change at some point. It's probably going to take a combination of tax increases and spending cuts over time. But we need to keep rates low to make this more affordable no doubt. So these are just congressional budget office forecasts for how big this debt pile is going to get. And so by 2050, if no policy changes and that includes a sun setting of the Trump tax cuts from 2017.

Jeff Buchbinder:

So if there's no change and those tax cuts go away, of course that is a big tax increase. Even with that, your tax or your debt pile grows and grows and grows. And if, again, policy will change. But if it didn't we'd be at 160% of GDP on the debt and, and then some by 2050. So again, not sustainable, going to have to change, probably going to have to make some very tough choices. Those tough choices could come as soon as the 2028 election cycle, but frankly, hopefully something is done at least to move the needle a little bit before then. So next on the list, worry is valuations. And you've all heard me say this many times, valuations are not good timing tools. So you cannot look at a valuation metric and say, that means stocks have to go down, right?

Jeff Buchbinder:

You'll probably be right eventually, but it could take months, it could take years. And you could miss out on some spectacular gains. As you know, Alan Greenspan famously said in 1996, this is irrational exuberance, and then the market rallied for four more years, right? Perfect example. Even this cycle's an example because there are a lot of folks talking about how expensive stocks were in 2021 and have been under invested since then. It helped in 2022, but we're way above the 2021 highs on the S&P 500, right? So the best thing to do is to, frankly, maybe saying ignore valuations is too strong, but look for catalysts, right? Use the economy as a catalyst, good or bad, or earnings as the catalyst, good or bad. And let that guide your investments. Don't put too much weight on valuations. I would argue also argue and Adam will like this, use technicals, right? If the market doesn't break down the trend's, your friend, right? Adam taught me that. I might have heard other technicians say that before Adam, but let's say Adam taught me that.

Adam Turnquist:

It wasn't mine, but yeah.

Jeff Buchbinder:

Wasn't Adam's. Let's say he taught me that. The trend is your friend. And so as we use technicals in LPL Research, that's telling us to stick with this market right now and not get too defensive, even though valuations are high. So if you calculate an equity risk premium, it basically compares the earnings that stocks generate to the earnings that bonds generate. Of course, the earnings from bonds are called yield, so it's an earnings yield versus a bond yield (i.e. Treasuries). Compare those and what it tells you right now is you're getting a better value from the bond market. So equity investors are not getting compensated for taking on that additional risk relative to Treasuries. A so-called risk-free rate. Not really a risk-free rate, but it's treated as such. So stocks are expensive, we get it. We've been saying that for several years, but that's not a reason to sell. So next, Adam, this one's yours. And I think this, I mean, I alluded to it earlier, probably the most important development over the last week or maybe over the last several weeks is that interest rates are moving higher. Now, it hasn't really slowed down the stock market much, but it did slow the market down last week. So what's the message here from from this turn out and where, where do we start to worry?

Adam Turnquist:

Right now, I think we're getting close to, we'll call it the danger zone, since we're talking spooky Halloween stories here on the top chart. That's the 10-year Treasury yield. And you can see we've had this notable bounce off the recent lows coming into September, around 360. We're up over 60 basis points since then. And I think a lot of investors and clients are perplexed because they say, wait, I thought the Fed cut rates in September. Why are yields moving higher instead of lower? And of course, the market expected the Fed to cut rates maybe a little bit too much. So there's been a recalibration there. Economic data coming in better than expected, and we'll talk about some of the drivers that have pushed yields higher. But technically, when we get through the kind of 4.30 area on the 10-year, that's been problematic for U.S. equity markets. That was the case back in the correction last fall.

Adam Turnquist:

If you remember, yields moved too much too fast through that 4.30 level that goes all the way back to the October, 2022 highs that you can see on the left side of the screen. And that's really the tipping point for risk appetite. And you can see the reaction in equity markets on the bottom panel, the S&P down 10 and a half percent during that correction. And then you fast forward to the spring of this year, same thing. You had rates shoot higher, not to 5%, but through that 4.30 level investors in equity market said that's a little too high. We're selling stocks here. Had about, I think a five, 6% pullback there. And so I think that's the playbook as we look ahead to right now. We're only five basis points maybe away from that 4.30 level. So I do think maybe it puts a little bit of a pause or does trigger a pullback in equity markets. It's just tough to digest some of these recent moves just given the rate of change.

Jeff Buchbinder:

Yeah, market had to be surprised by the inflation outlook at various points, you know, for us to go to 5% or even north of four and a half. Those certainly coincide with the biggest pullbacks that we've seen over the last year. That's what you have to watch for. Again. I mean, I guess you, the base case is that if we do go four and a half or 5% again that stocks are going to struggle with that that kind of level. So I guess you're going to talk a little bit about yields more in a minute, but let's get into your charts, Adam. And you know, here again, we're trying to scare folks with these titles, so risk of some short-term pain ahead of long-term gains. By the way, we didn't give you all the things that scared us. In the weekly commentary, which you can find on lpl.com, we also talked about political divisiveness in this country, which is, you know, certainly obvious as the election approaches, unfortunately.

Jeff Buchbinder:

And then we also have a couple paragraphs about geopolitics and in particular the importance of Taiwan's semiconductor production capabilities with, you know, the company Taiwan Semiconductor, certainly one of the most important companies in the world. And they're in a tough spot with the potential for China to move aggressively over there. So that's probably the scariest geopolitical headline right now, although, you know, it's hard to put that above for the markets anyway, but hard to put that above, you know, all the death and destruction in the Middle East and in Ukraine. So let's get back to the charts. So Adam, you know, you're alluding to potential weakness in the near term is, you know, is the election part of that? Is it more to that? What are you seeing when you look at the charts?

Adam Turnquist:

Definitely part of it. Tough to quantify the exact part of it, but contributing to, I think, higher yields. When you look at some of the betting markets on the top panel of this chart, we're showing the 10-year Treasury yield that we were just talking about. You can see in blue there at 4.26, and you can see that compared with the election odds in red for former President Trump at 66% and moving higher over the last several weeks. Compare that to Kamala Harris, her odds down to, I believe 34%, it's in the dark blue or kind of black. And that correlation certainly increasing between yields and former President Trump, I think, as the market may be pricing in a potential victory there. Talking about inflationary impacts with some of his tariff talk not obviously implemented, but the threat of tariffs causing potentially higher inflation.

Adam Turnquist:

Also, just the spending that could come if under a Trump White House in this election. Not the only thing. And one thing to note before we move on to more of the economic side, is just poly market in terms of notional trading volume, I use that one just because there's a, I think 2.6 billion I looked this morning, in terms of trades or bets that are placed on the election this year that compares to some of the other U.S. based ones that are kind of in the 80 to a hundred million type range in terms of the volume. But the message is pretty clear, at least in the betting markets, that there's a much higher probability for a Trump win over Harris. The interesting thing though, the election indicator still suggesting that a Harris will win is a reminder that's the performance of the S&P three months up into election day.

Adam Turnquist:

So that three month window, if the market's higher, the incumbent party tends to win that White House. If it's lower, you tend to get a flip in the White House. That's been the case 20 of the last 24 times. So I guess we'll call it mixed signals when you look at some of these betting markets, what the market is telling us, and then of course, what the polls are telling us. But going back to yields here, it's not just the election that's driving yields higher, I think the biggest factor is really just better than expected economic data. You can see that on the bottom panel, the kind of copper tone dotted line, that's the U.S. Citigroup economic surprise index. So as economic data comes in better than economist forecast that moves higher, we're back to positive territory. And then also break even inflation rates. That's the market based estimate of future inflation that's also moving higher. So you have better growth and uptick in inflation expectations over the last several weeks. I think that's really the biggest driver, but definitely could see some volatility and movement in the Treasury market based on what's happening in the election as well.

Jeff Buchbinder:

I think the economic data here is the big story. I mean, Lauren Gillum, our Chief Fixed Income Strategist, has been saying the same thing. It's the economic data that's really driving these yields higher, much more so than just election speculation. And I'll also add, you know certainly we all are looking at polls. You know, if you look at the most credible polls or what I think political strategists think are the most credible polls you know, 5.38 real clear politics et et cetera. It is a dead heat. I mean, it is, the swing states, of course, are all that matter really. You could argue that one or two states are all that matters. And there it's just really tight. So these vetting markets, you know, maybe are as much an indication that somebody with a lot of money wants to influence the election and make it seem like Trump is a big favorite when he is really not as big of a favorite as it appeared.

Jeff Buchbinder:

It might be the favorite, but don't think of him as being ahead by, you know, this implies what, 30 points. Yeah, don't think of him as being way ahead. This is a far from certain, and I like Adam, how you gave some the other side of the story, like the stock market's predicting an incumbent victory, the Dems, and by the way the misery index, right? So the combination of unemployment and CPI inflation that has had a very good record of predicting elections, that's pointing to an incumbent victory too. So we're not making a call here, we're just saying it's, it's tight despite what the betting markets say.

Adam Turnquist:

If you go back to 2016, and we'll jump ahead to the technical sphere, but I remember doing sell side research and we put out a report and I think Trump's odds of winning in 2016 were less than 20% about a week before the election and the market was higher or at that case lower because we were going to get a flip. And that was the research we put out like, hey, the market is saying that Trump could actually win the election. And I remember email saying that we're crazy. It wasn't an election call, it was just, you know, making the observation. So it goes to the point, obviously anything can happen on election night, so you have to kind of discount some of the polls and betting markets and really just wait and see what happens.

Adam Turnquist:

But let's talk technicals here on the S&P 500. As you can see, hopefully on the top right, we're getting close to the upper end of this longer-term rising price channel. We've had this nice rally through the July highs. However, momentum starting to slow as the index gets closer to that upper end of the channel. So no surprise here to see a little bit of a pause or even maybe a pullback in terms of support levels to watch the 20 day moving average. That's been a really good dynamic area of support. Keep an eye on that level 5794. You have your 50 day near those July highs. So if we do see some selling pressure perhaps this week or next week around the election, those would be some key support levels to watch. And then internally, when we look at momentum, we like to use the Mac D indicator, which is just moving average convergence divergence, kind of a mouthful, but it just looks at the relationship between two moving averages essentially.

Adam Turnquist:

And we ran it within the S&P. So we looked at every stock within the index, how many have registered sell signals or buy signals, and that's what that middle panel is showing us. And recently we've had an uptick in sell signals highlighted there in red. Not a lot of buy signals as we get close, you know, to that resistance level near the upper end of the channel. And that's really the playbook that took place back in March when we had that pullback, the summer highs of 2023, and then some of the other retests to that upper end of the channel. We had a big jump in the internals internal momentum here. So suggesting, again, maybe a little bit of a pause or a pullback, no surprise, I don't think it's any way indicative of a top in the market, likely due for a breather here, just given the rally we've had. So I think, again, longer-term bull market alive and well, any type of weakness could be a buying opportunity.

Jeff Buchbinder:

Yeah. So seasonals on during an election year tell you that, you know, you should pull back before maybe this time the pullback came early and late, right? So we had the August volatility, of course, people were focused on the election in August, maybe after the election we get some volatility. It's not following the seasonal playbook but it certainly could still come.

Adam Turnquist:

And, and speaking of seasonal playbook, we're now getting into the best six month period for the S&P 500. So really more evidence if we do get a little bit of a pullback or some weakness. The seasonal support at buy, the dip strategy here. This just looks at the six month return windows for the S&P 500, going back to 1950. We all talk about sell in May, go away, and you can see toward the bottom of the chart the average return during that six month window, obviously the the worst stretch for the market, but we seldom talk about the November to April timeframe being the best month. The sell in May gets I think, too much too much headline versus the really the more important November to April timeframe average return going back to 1950, again, up 7.2%, and you're actually higher during those period 77% of the time. So by far outpacing other six month periods, not only on average returns, but also on positivity rates.

Jeff Buchbinder:

Yeah. And if you do better in the May through October period than average, you tend to do better during the November through April period on an average. I'll add that to this study. So, you know, we've expected some volatility for a while. I mean, we'll still, we'll get it eventually. We always do, but, you certainly can't totally discount the possibility that we just keep running through the election and through year-end.

Adam Turnquist:

Yeah, the VIX is telling us, maybe buckle up a little bit over the next 30 days. We're back to the longer term average on the VIX, which is right around 19 and a half. That's coming from a very low vol regime that we witnessed for most of this year coming into the summer. We know that volatility tends to be mean reverting. I think that's really what we're seeing here. So maybe a more normalized volatility backdrop into year end. Not really any signs of a panic here, at least over the next 30 days by the VIX level. But when you look at the actual futures curve on the VIX, and I thought this was interesting because it's in what's called backwardation. So the front month is trading at a premium to longer dated contracts. That's just suggesting that there's more demand for near term hedging or near term VIX contracts than the longer term contracts.

Adam Turnquist:

Historically, the markets in contango, meaning those front month contracts are cheaper than the longer term. You can see that on the bottom panel in red. That's about 80% of the time you're in contango. So typically when you move to more of a panic backdrop, you go into backwardation. I wouldn't call this a spike in backwardation, but certainly interesting coming into the election. I think that's really what we're seeing in terms of the demand side for VIX hedging, but could see a little bit more volatility, I think as we move into the year end versus what we've witnessed in the first half. Not a bold call by any standards. I don't think we're going to see a 12 handle on the VIX probably anytime soon though.

Jeff Buchbinder:

Yeah, I mean, the, the event risk around the election is high. In fact, I, you know, I would argue that the VIX should be higher than it is now. But you know, you invest in the market that you've got not the one you want or you think you should have. So yeah, so still buckle up. That is certainly something that scares us election related volatility and the potential for chaos. And, you know, we have to wait for recounts and we have challenges and all of that mess that we certainly learned about in 2020, if not in 2000. So big week, Adam, for the Mag Seven, five of them report earnings.

Adam Turnquist:

Yeah. And moving in the right direction here. Technically we've been waiting and waiting for the Mag Seven. This was the equal weight index on top. So every Mag Seven component equally weighted. Finally getting out of this kind of consolidation range and now getting closer to record high territory. I think a lot of people are surprised by the fact that many of these names have not broken out to record highs yet. Even Nvidia, the kind of the poster child of the Mag Seven mega cap finally hit record highs recently, but it, it was not until June, that was the last record high for Nvidia. We like to look at things, of course, on a relative basis, are you getting paid to own the Mag Seven or mega cap? And we highlight that in the bottom panel. We compare the equal weight Mag Seven index to the equal weight S&P 500. So the average stock versus the average Mag Seven. And you can see really just kind of consolidating above the rising 200 day moving average. We're starting to see a breakout just over the last couple sessions here suggesting that maybe the Mag Seven are now reasserting that leadership status that's been in play for most of this bull market after a bit of a pause, call it a pullback, over the summer months.

Jeff Buchbinder:

So that's big caps. How about small?

Adam Turnquist:

Small caps still struggling. This is probably the number one question I get. When are small caps going to start outperforming? When are they going to break out? And we're not there yet. We've just been stuck in this consolidation range. This is the S&P 600 small cap index still below those 2021 highs. And then on the bottom panel, we're comparing the small caps to the large cap S&P 500. And you can see it's been in this consistent declining price channel for the last couple years until you get a reversal in relative strength and that you break out from that declining price channel. I think the call is to lean more toward large cap over small cap. It's been a pretty consistent and profitable trade over the last two years.

Jeff Buchbinder:

Yeah, people have certainly been calling for a broadening out for a long time, ourselves included. But we certainly haven't seen enough evidence that that broadening out is going to mean small cap out performance. So thanks for that Adam. Really good stuff this week. So let's preview the week ahead, which is one of the busiest weeks of economic data and earnings that you will ever see. So starting with the economic data. So remember the Fed's preferred inflation metric, the core PCE really matters. So that's expected on a year over year basis to improve slightly from 2.7% to 2.6%. That's on Halloween. Friday, certainly the jobs report, possibly the highest profile economic report that we get. Expectations are for 110,000 according to Bloomberg Consensus Economists survey. But frankly, given the weather impacts and the strike, actually, we've had multiple strikes, but certainly Boeing's is high profile right now. That one 110 might be high. We'll have to see. I will say, Adam, that I think the market's going to look past a weak jobs number because of all the distortions in that. So we wouldn't put too much weight on the jobs report, whatever the number is. Interested in your thoughts on that or any of the other data this week?

Adam Turnquist:

I think you're spot on there. The market's going to likely discount even good or bad economic. The jobs report on Friday, just given some of those distortions.

Jeff Buchbinder:

It won't believe the bad if there's, I mean, it won't believe the good if it's good if it's bad, it'll be written off.

Adam Turnquist:

So maybe I don't know if we want call it a non-event. It will certainly create some headlines and volatility, but I think it's not going to be as impactful as a clean non distorted report if there's such a thing. So that's going to be interesting. Of course, the GDP report it will be another one. I've been reading some interesting research on weekly jobless claims, which of course get a lot of attention and there's distortions there, but there are some analysis around states that were not impacted by the hurricane and the trends there a little bit more alarming. We've had a big uptick in those states that are not in the wake of the, and impacted by the recent hurricane, but of course there's some layoffs and things like that. It certainly will be an interesting week especially with, as you mentioned, earnings. Curious to think or, you know, to see how the mega caps report, if that changes the growth for this reporting season so far. I know you've talked a lot about it. I don't know if we call it underwhelming, but not super exciting growth. And it curious if you think the Mag Seven or the names reporting this week are going to change that?

Jeff Buchbinder:

Yeah, I think they probably will change that narrative and make it a little bit better. You know, all the statistics around earning season have been kind of as expected or maybe a little bit worse. You know, whether it's beat rates, it's average surprises, it's, you know, guidance ratios, all that stuff, all the stats you want to look at. Financials is a winner and everything else is kind of meh. So, you know, we'll probably still end up growing earnings north of 4%, maybe even, maybe even north of five when all the numbers are in. But the Mag Seven's going to have to get us there because it looks like the rest of the market is struggling. The rest of the companies are struggling to get those numbers up. Now, there's Boeing drag in there so, you know, big losses for Boeing reported in the last quarter.

Jeff Buchbinder:

So if you take that out, you're already close to 5%. Mag Seven by itself is probably going to be four points of S&P 500 earnings, maybe even a little bit better. So it should be pretty easy to get to five overall, maybe even six ex-Boeing. But the trends in CapEx for the Mag Seven in terms of spending on AI are not going to change dramatically. That environment is still quite, quite strong. Now, that doesn't mean that analysts won't start to challenge the companies on the spending, right? Where's the payback? Give me examples of companies using AI profitably, right? And all of that. So we'll hear more of that. But I'm sure the numbers for, you know, all these names across the board are going to be pretty good. The bar's high, but the growth trajectory I don't think is really going to change that much.

Jeff Buchbinder:

We'll get at least 20% average growth in earnings out of the, out of the Mag seven when all is is said and done. So we get Meta and Microsoft, I think Wednesday and I think Apple and Amazon on Thursday, if I'm not mistaken. Maybe Alphabet tomorrow. I mean, it's just, it's going to be dizzying. So now that those are just the Mag five of seven, we get another 160 something companies that report this week. So we'll try to our best to pull out trends and takeaways for you for next week's podcast. But right now it's kind of hard to pull much out other than just the fact that numbers have been in line as expected. Growth isn't really that strong. Financials are a winner. And then, you know, estimates are holding up okay but they are coming down. So thanks for that Adam for teeing that up. Just a huge huge week. So let's close it out with a quick recommendation on Halloween candy. Adam, what's your, what's your go-to?

Adam Turnquist:

My go-to is probably the classic Twix.

Jeff Buchbinder:

Ah, solid.

Adam Turnquist:

Childhood favorites and a good one to share. So when I go to the store, sometimes I'll get my son a Twix and I only, he doesn't know there's two in there.

Jeff Buchbinder:

Oh, so dad gets one? Nice. For me it's the hundred grand bar. It's a little bit, you know, underrated. I think it is underrated. All the craziness about, you know, Kit Kats and Snickers and Nestle Crunches. I go for something a little bit below, you know, below the radar there with the a Hundred Grand bar. For those of you who, if you like caramel and chocolate, hmm, that's the one. So we've got a bag. I'm going to try to hide that from the kids that come by. So we have lots of leftovers. So with that, we'll we'll wrap it up. Everybody have a fun Halloween holiday. Hopefully we didn't scare you too much with our list of things that worry us a little bit as investors. We'll be back with you next week for another edition of LPL Market Signals. See you then.