Bank Stocks Boost US Market; Will Earnings Season Spark New Rally?

Against the backdrop of general skepticism, the banking industry's strong performance has helped U.S. stocks continue their upward trend at the beginning of the earnings season. However, while economic data and expectations for the Federal Reserve's monetary policy remain largely stable, fluctuations in U.S. Treasury yields due to geopolitical risks may pose volatility risks. Charles Schwab believes that, considering the high valuations of U.S. stocks at present, the sustainability of the market trend requires broad earnings support from different industries.

The Federal Reserve's interest rate cut expectations remain stable. Influenced by factors such as weather and strikes, the latest U.S. inflation and employment data have shown some fluctuations. Preliminary results from the University of Michigan's consumer survey indicate a decline in U.S. consumer confidence so far this month, while expectations for inflation over the next year have risen. Driven by price increases in some service categories, the core Consumer Price Index (CPI) and Producer Price Index (PPI) for September were slightly higher than market expectations.

Due to Hurricane "Helen" and the Boeing strike, the labor market situation in the United States this month may be distorted. The U.S. Department of Labor reported that the number of initial jobless claims in the United States increased by 33,000 last week, reaching 258,000, the highest level since early August 2023 and the largest single-week increase since July 2021.

Bob Schwartz, a senior economist at Oxford Economics, told First Financial Daily reporters that last month's prices were mainly affected by food and housing. The good news is that there are signs of a slowdown in rent, which bodes well for the coming months. He believes that although tensions in the Middle East have pushed up global oil prices, the risks to the inflation outlook remain broadly balanced. On the other hand, the labor market is more resilient than expected, but external shocks from hurricanes and Boeing may have a significant impact on the number of jobs in October. Schwartz expects this to attract some attention, but the Federal Reserve will focus on the bigger picture, and the prospects for a soft landing remain optimistic, consistent with a moderate pace of interest rate cuts in the coming months.

Long-term U.S. Treasury yields have diverged, with the 2-year Treasury, closely related to interest rate expectations, rising by 1.1 basis points to 3.94% for the week, and the benchmark 10-year Treasury rising by 9.2 basis points to 4.07%. According to the Fed Watch tool of the Chicago Mercantile Exchange, the likelihood of the Federal Reserve cutting interest rates by 25 basis points at the November meeting is about 88%, and the likelihood of keeping rates unchanged is 12%, which is basically the same as last week.

Steve Sosnick, Chief Market Strategist at Interactive Brokers, said: "There are short-term risks of fluctuations in economic and inflation indicators, (but) the market reaction shows that there is nothing particularly significant that can cause a major change in risk appetite and narrative, and the Federal Reserve will continue its easing cycle."

Schwartz told First Financial Daily that the latest meeting minutes show that the Federal Reserve believes the upside risks to inflation have been reduced, while there are downside risks to the labor market. In the short term, conflicts in the Middle East and elections are disturbing factors, and a significant increase in oil prices or import tariffs will affect the real income of households and lead to a slowdown in consumer spending growth. He believes that, overall, the Federal Reserve will cut interest rates by 25 basis points at the November meeting. The Federal Reserve needs to continue to normalize interest rates to put the economy on the path to a soft landing.