Between Mag 7 earnings and jobs data, next week is 'the Super Bowl for investors'

Horizon Investments head of portfolio strategy Zachary Hill joins Julie Hyman and Josh Schafer on Market Domination to break down what investors need to know with Big Tech earnings and fresh economic data on deck in the final week before the US presidential election.

“The next two weeks are like the Super Bowl for investors, just one after another, after another,” Hill tells Yahoo Finance. Next week, five of the “Magnificent Seven” names — Alphabet (GOOG, GOOGL), Microsoft (MSFT), Amazon (AMZN), Meta Platforms (META), Apple (AAPL) — are reporting quarterly earnings.

“That's obviously a huge deal, not just for the Nasdaq (^IXIC) and related indexes, but also for the S&P 500 (^GSPC),” the strategist says, noting that the results could feed the “debate back and forth between, are we going to get a more cyclical kind of rebound because the economy is stronger or more of that kind of defensive growth trade that we've seen really over the last 18 months.”

On top of continued third quarter earnings results, the market will also get new data that could provide insight into the state of the US economy and the Federal Reserve’s next move at the November meeting. The Bureau of Labor Statistics will release the Job Openings and Labor Turnover Survey (JOLTS) on Tuesday with fresh non-farm payroll data on Friday, November 1. Investors will also get the first cut of the US Gross Domestic Product (GDP) for the third quarter of 2024 on Wednesday.

Amid uncertainties, Hill says he does expect markets to go higher. “There's a lot of reasons to worry,” like rates staying higher for longer and the election, among other factors, but “really when we cut through a lot of that noise, we focus on the primarily on the health of the underlying economy, because that's going to drive earnings and ultimately that's going to dictate the path for risk assets. We still see that, broadly speaking, as being something that's that's very supportive.”

To watch more expert insights and analysis on the latest market action, check out more Market Domination here.

This post was written by Naomi Buchanan.

Video Transcript

All right, but for more on the latest market moves and for what to watch as we approach a big week of earnings.

Let's welcome in Zachary Hill Horizon Investments, head of portfolio strategy, Zach, I wanna start with where we're at right now with the market.

Julie and I were just talking close to record highs in the S and P 500 close to record highs in the NASDAQ big week.

Next week, a lot of eco data coming out, you have big tech earnings.

What do you think is gonna drive the market over the next week or two here?

Yeah, I mean, the next two weeks are like the Super Bowl um for investors just one after another after another.

So, I mean, you know, next week we get five of the seven mag seven names reporting.

Um That's obviously a huge deal.

Uh not just for the NASDAQ uh in related indices but also for the S and P 500 just given how large they are.

Um And that kind of debate back and forth between um you know, are we gonna get a more cyclical kind of rebound?

Is the economy stronger or you know, more of that kind of defensive growth trade um that we've seen really over the last 18 months, you know, couple that with um all the jobs data we get next week.

So obviously we get non farm payrolls on Friday.

But then also the jolts report, you know, is one that the F as, as looked to as something that's, that's very important for assessing overall health of the labor market.

So, you know, those are, and we get the first cut of GDP um for Q three which admittedly is backward looking, investors don't really care that much about that.

Um I think the jobs numbers are much more important but really quite a lot of data next week and we're not even talking about what's occurring uh the week following.

Yeah, the, you mean that thing on November 5th that we were looking ahead to, is that what you're referring to Zach?

Ok. Well, put it, put all this together then do you think that stocks continue to be able to rise in the face of all that stuff?

Yeah, we do by and large.

I mean, we've, we've really repriced interest rate expectations over the last month, month and a half, really since the um the 50 basis point cut that, that got everything going in September.

Um And there's a lot of reasons to worry, you know, rates are higher.

What about political uncertainty, all this sort of thing?

And really when we cut through a lot of that noise.

We focus on the, primarily on the health of the underlying economy because that's going to drive earnings and ultimately, that's going to dictate, um, you know, the path for risk assets.

And we still see that broadly speaking as being something that's, it's very supportive.

I mean, I think we saw a little bit of a trough, um and some of that labor data that's, you know, what was driving defensive to outperform in Q three and driving interest rates to fall.

Um And we've reversed a good bit of that.

Um, you know, that path in the, in the last few weeks.

And we do think that makes, you know, more sense to, for stocks to work their way higher.

Now, what happens over the next two weeks is obviously gonna depend on all that stuff we talked about before.

So that's a little bit of a, uh a more, uh, you know, that's, that's a harder call to make Zach you mentioned at the end of the year and, and through next year, yes, we continue to see broad upside for, for equities and you mentioned rates moving higher there.

I think the 10 years added about 50 basis points since the, uh since the fed enacted that interest rate cut, it's really chugged higher along with also the economic surprise index.

I was looking at a chart looking at both of these, right?

And it's been better than expected economic data, it seems perhaps at least somewhat contributing to what's driving yields higher, I guess, as an investor, what's the takeaway from that?

If economic growth is what's driving yields higher?

Does that not make it a headwind for stocks or at some point?

Are we still talking about a higher tenure potentially being a headwind for equities?

Yeah, I mean, I think there are two things that matter.

I, multiple things that matter.

I mean, one is obviously the level of rates is going to impact, um, long term discounts.

Um, you know, so that's gonna have a discount factor impact on, on how you value equities and what the multiple fair value multiples should be.

Um, but the other thing I think is probably more important and gets lost in this conversation is why are interest rates moving if rates are moving down because the fed has got to cut more because we're going into a recession, that's not good for equity markets, even though policy is going to be easier.

Conversely if interest rates are going up because, um, eco economic growth is stronger and we can live with higher interest rates.

The economy's steady state is just a little bit higher than it was in the 20 tens period, which certainly is the way that, that we lean in terms of how we're thinking about rates, then that's not a bad thing for, for equity markets.

That's actually quite a good, um, overall environment.

I mean, a lot of the nineties were, were characterized by environments and look a whole lot like that.

Um So those are, those are, um you know, some nuance around rates, I mean, the last thing and some of the, you know, maybe this last week, um there's been a lot of talk about fiscal sustainability within the US almost, you know, regardless of what happens um a after the election.

And so, you know, that that is the type of scenario where you have rates up for kind of the wrong reasons.

And, and broadly speaking, we wouldn't expect equity markets to react well to that, if you need higher risk premium, you know, for us debt.

Um Well, that just, you know, stands to reason that um you're gonna pay less, um you know, for us and other equities in that, in that type of a world.

So, um that's something that we're watching.

It's also been, people have been talking about, you know, the US fiscal sustainability situation, um you know, over my entire career and it has never really mattered outside of um just a few, you know, isolated instances that, you know, yeah, lots of people like to say it's gonna matter at some point when it does, but you're right, it hasn't yet.

Um You mentioned that people have been sort of now rotating back out of defensive and I know you like growth here.

Obviously mag seven is part of growth, but why do you still like growth here?

And is it gonna be earnings that are gonna be the next catalyst for that group?

Yeah, earnings are really important.

Um, you know, obviously to continue to, to beat and raise, especially for the, you know, very high expectation semi companies um that are involved in the A I theme is something that's, that's really important.

So, you know, watching the hyper scalars next week and what their Capex plans are uh is gonna be really key for that part of the A I trade.

But really, you know, since um uh the, you know, kind of June July period, we've seen, you know, some growth leadership, uh kind of downshift into a little bit of a different kind of environment of broadening out, so to speak of the A I theme.

So not just the, the picks and shovels, um chip producers, but, you know, some of the hardware and software enable companies, um cloud services providers, that type of thing.

We've, we broadly view that as, as a healthy development for the overall theme.

And we do think, you know, the, the scope and the impact of A I on the economy is still very early innings.

And so, um, don't give up on us growth kind of no matter what this earnings season looked like, but it may be a little bit of a different kind of market environment than we saw over the last uh, 12 or 18 months.

Zack.

Thanks a lot.

Appreciate it.

Thank you.