Earnings, Fed Decision, Jobs Data Are Key This Week. One Thing’s More Important.

Earnings will be torrential, with about 150 S&P 500 companies due to report this week. Highlights include
McDonald’s
, AMD, Apple, and Eli Lilly. The story so far seems to be that even though companies seem to be doing alright, and economic growth was strong in the third quarter, investors aren’t happy. The S&P 500 entered a correction last week, as measured by a 10% drop from its peak. The Dow Jones Industrial Average is at its lowest since March.

That opens the question of what’s really driving stocks these days. The most reliable correlation of late seems to be that as bond yields go higher, stocks go down as well. And with the 10-year yield already around 5%, the next question is whether bond yields will continue to rise.

There are certainly a handful of people who are saying bonds are now oversold–hedge fund manager Bill Ackman and Pimco, the world’s biggest bond fund, are among them. The 5% coupon alone, a guaranteed return, could make them worth buying, even if worries about government spending persist.

But if the big players are ready to get back into bonds, and the correlation between stocks and bonds rising and falling in tandem holds, the outlook for stocks could be getting brighter.

—Brian Swint

*** Join Barron’s senior managing editor Lauren R. Rublin and deputy editor Ben Levisohn today at noon when they speak with Barry Knapp, managing partner of Ironsides Macroeconomics, on the outlook for financial markets, industry sectors, and individual stocks. Sign up here.

As Fed’s Rate Decision Looms, It Examines Old Model

The Federal Reserve is expected to hold interest rates steady at its two-day meeting that starts on Tuesday, extending the pause that began after the last rate hike in July. Officials are signaling they’d like to stay on the sidelines but could keep a December rate increase in the cards.

• Fed officials are debating whether their old model is still valid, The Wall Street Journal reported. Recent strong reports on the economy and the job market show two phenomena going on simultaneously: strengthening activity and slowing inflation.

• Third-quarter economic output accelerated to a 4.9% annual rate, while September inflation data wasn’t as sunny as prior reports over the summer. Still the Fed can hold rates steady because earlier rate increases are starting to be felt by consumers and businesses.

• The Fed will be closely watching the labor market. If demand really is ahead of potential, a tight labor market would make for inflationary wage gains, the Journal reported. Job openings for September are expected to be 9.5 million, down slightly from the prior reading.

• The ADP private payroll report for October on Wednesday is expected to say companies added 142,500 jobs, up from 89,000 in the prior reading. The government’s nonfarm payrolls on Friday are expected to come in around 192,000 for October, down from 336,000 the prior month.

What’s Next: The Fed will release its interest rate policy decision on Wednesday at 2 p.m. Eastern time. While a pause is largely expected, focus will turn to Chair Jerome Powell’s comments and any clues as to whether another rate hike may still be on the table.

—Liz Moyer

***

Apple, AMD, Qualcomm Earnings Highlight Tech Demand

All eyes are on
Apple,
which reports earnings this week amid interest in how well consumer demand will drive sales of its thousand-dollar iPhone 15s. J.P. Morgan analysts recently noted signs that demand for the iPhone 15 is weaker than it was for its predecessor at this time last year.

• Apple is expected to report September-quarter sales of $89.3 billion, down from $90.1 billion in the same quarter last year, according to analysts tracked by FactSet, the fourth straight quarter of decline from the year-ago period. Sales of iPhones are expected to be $43.8 billion.

• Apple, which makes more than half its revenue overseas, could also show currency-exchange effects, given the strong U.S. dollar, said FactSet senior earnings analyst John Butters. Companies with higher international exposure are reporting lower profit and revenue than S&P firms with mostly domestic business, he said.

• Separately,
  Qualcomm,
  reporting Wednesday, has a new chip supply agreement with Apple that covers all iPhones through 2026. An existing deal was to end with the 2024 iPhone launch. Qualcomm also has a new processor coming in 2024 that will compete with
  Intel
  and Advanced Micro Devices.

• AMD
  reports earnings Tuesday. Piper Sandler analyst Harsh Kumar said Intel’s comments about healthy inventory levels for consumer and enterprise PCs could be bullish for AMD as the only other major participant in the PC market, and Intel’s optimism about AI chips demand “bodes well for AMD’s upcoming MI300 launch.”

What’s Next: A weak report from Apple, whose market cap accounts for about 7% of the aggregate value of the S&P 500, could be a worrisome sign. Fellow tech titan
Microsoft
is now threatening Apple’s title as the world’s most valuable company—the gap is about $180 billion.

—Janet H. Cho, Eric J. Savitz, and Tae Kim

***

Disney
Activist Gets Support From Former Marvel Chairman

Activist investor Nelson Peltz’s campaign for a board seat at Disney is being backed by former Marvel executive Isaac Perlmutter

• Peltz’s Trian Fund Management has control of Disney shares worth more than $2.5 billion. The majority of that is made up of shares owned by Perlmutter, who plans to urge Disney’s board to accept one or more of Trian’s board nominees, according to The Wall Street Journal.

• Perlmutter is one of Disney’s largest independent shareholders due to his sale of superhero company Marvel to the entertainment giant in 2009 for $4 billion.

• Perlmutter’s own position at Disney was terminated earlier this year amid a wave of layoffs implemented by CEO Bob Iger. He isn’t seeking to rejoin the company but believes it is underachieving, according to the Journal.

What’s Next: Peltz’s Trian hasn’t officially launched a proxy battle against Disney. The public intervention of Perlmutter heightens the stakes for Iger ahead of the nominating window for the board of directors in December. It could pile on the pressure for Iger to pull out a major announcement such as the spinoff of ABC or an external investor for ESPN.

—Adam Clark

***

UAW Raises Pressure on GM After Stellantis Deal

The United Auto Workers expanded a strike against
General Motors
to another facility this weekend as the labor union increases pressure on the auto maker to reach a new contract. The UAW has already reached tentative labor agreements with both Chrysler maker
Stellantis
and
Ford Motor.

• The surprise move by the UAW affects workers at GM’s Spring Hill, Tenn., plant, where the Cadillac XT5, XT6, the all-electric Cadillac LYRIQ, and the GMC Acadia are made. GM told Barron’s in an email that it was “disappointed” by the UAW’s decision and has continued bargaining in good faith.

• The Stellantis agreement includes 25% wage increases through April 2028, according to the UAW. Union vice president in charge of Stellantis Rich Boyer said the UAW also won a commitment to add 1,000 EV-related battery manufacturing jobs at an idled plant in Belvidere, Ill. Separately, Canadian union Unifor began strike action at all Stellantis facilities in the country early Monday, with 8,200 workers walking out.

• Ford Motor and the UAW on Oct. 25 announced a tentative agreement that includes a 25% wage increase over the four-year contract, including about 11% in year one. UAW President Shawn Fain updated workers on the details of that agreement late Sunday.

• GM’s Tennessee plant also is important because that is where its engine plant supplies other GM facilities where top-selling vehicles are produced, the Detroit Free Press reported.

What’s Next: The UAW leadership met Sunday to decide whether to bring its Ford agreement to workers for a general membership vote, as is expected. If ratified by members, the agreement would cumulatively raise the top wage to more than $40 an hour and reinstate cost-of-living adjustments.

—Al Root and Janet H. Cho

***

Pharma Earnings to Highlight Waning Covid Demand, Weight-Loss Drugs

Pharmaceutical rivals
Pfizer
and
Moderna
are racing to develop combination vaccines that protect against Covid-19 and the flu, but are already seeing dwindling interest in Covid-related products and risk losing investor interest to rivals that have focused on developing the latest class of weight-loss drugs.

• Pfizer and its German partner
  BioNTech
  said their combined Covid-19 and influenza vaccine performed well in early tests that compared it with two stand-alone vaccines. They expect to start a Phase 3 trial in coming months.

• Moderna has said its combination vaccine could be ready in 2025. Third-quarter sales for both Pfizer and Moderna are expected to be lower than last year’s third quarter as Covid product demand falls. Analysts forecast a sales drop of 41% for Pfizer and 59% for Moderna.

• Citi analyst Andrew Baum wrote that
  Eli Lilly’s
  diabetes drug Mounjaro, still awaiting approval for weight loss, could eventually reach peak sales of around $60 billion, with $37 billion in sales coming from weight loss treatment. Lilly’s third-quarter sales are expected to rise 29%, according to FactSet.

• Lilly’s Mounjaro is competing with
  Novo Nordisk’s
  weight-loss drug Wegovy and its diabetes treatment cousin Ozempic. Novo Nordisk has become the biggest European company by value since the Ozempic phenomenon. Third-quarter sales are expected to rise 34%, FactSet said.

What’s Next: Pfizer recently revised its outlook for Covid-19 product sales, slashing its 2023 revenue forecast for sales of its vaccine by $2 billion and lowering its forecasted 2023 revenue by around $9 billion, to a range of $58 billion to $61 billion.

—Janet H. Cho, and Adam Clark

***

MarketWatch Wants to Hear From you.

Winter is generally a slow season for the real-estate sector, but will it stay frozen or thaw out—and more importantly, will home prices keep rising, or fall?

A MarketWatch correspondent will answer this question soon. Meanwhile, send any questions you would like answered to [email protected].

***

—Newsletter edited by Liz Moyer, Rupert Steiner, Callum Keown