What to Expect in the Week Ahead (Tesla and Boeing Earnings; Fed Beige Book)
Earnings Preview
Next week promises to be a hectic one with several key earnings announcements on the calendar. General Motors is slated to report on Tuesday, followed by Boeing and Tesla on Wednesday.
$General Motors (GM.US)$ is anticipated to slightly outperform expectations as it benefits from reduced costs and increased deliveries of lower-priced vehicles. However, the financial impact of electric vehicles remains a concern despite a rise in deliveries, according to Bloomberg Intelligence.
$Tesla (TSLA.US)$ will likely face probing questions during its earnings call regarding production targets and regulatory hurdles following the less-than-enthusiastic reception of its new Cybercab. This event did little to alleviate concerns about recent vehicle sales. The focus will be on Tesla's vehicle delivery outlook after its first gain this year fell short of expectations. According to Piper Sandler, there could be a sequential increase in automotive gross margins, helped by the recent price reduction and interest in this month’s high-profile robotaxi reveal. However, TD Cowen noted that the event was vague on details, with investors seeking clearer information on more immediate operating metrics like margins and sales.
$Boeing (BA.US)$ also faces challenges as it must address investor concerns over production delays, labor disputes, and dwindling financial reserves. The company’s new CEO, Kelly Ortberg, has announced a 10% reduction in the workforce in anticipation of his first earnings call, alongside a warning of a $5 billion charge for the quarter due to these production delays. According to Citi, these cuts mark the beginning of "a long pruning process" aimed at streamlining operations. Amidst a labor strike and threats to its investment-grade credit rating, Boeing has filed to raise up to $25 billion to prevent a liquidity crisis.
Macroeconomic Events
Fed Beige Book Likely to Indicate Slight Economic Growth
Recent economic data, including robust retail spending in September, have led more market participants to believe that the economy is performing well. If the Atlanta Fed's GDP forecast proves accurate, real GDP growth in the third quarter reached 3.4%, significantly surpassing many analysts' expectations of 2% potential GDP growth.
However, anecdotal evidence paints a less rosy picture despite these strong indicators. The Beige Book, which may be a key gauge for Fed Chair Jerome Powell, will likely describe economic growth as merely "modest" in its upcoming Wednesday release. This represents a slight improvement from its previous report, which noted flat to declining growth in two-thirds of Fed districts, but it still falls short of the optimism reflected in the Atlanta Fed's GDP nowcast. This subdued Beige Book was believed to be a driving factor behind Powell's decision to advocate for a 50-basis-point cut at the September FOMC meeting, similar to his dovish shift last December.
Two traditionally leading indicators of economic cycles, manufacturing, and housing, do not appear stable. Recent hurricanes in September and October have exacerbated challenges. Specifically, economic activity in the Richmond Fed district, heavily impacted by Hurricane Helene, is expected to show a downturn on Tuesday. Additionally, the Kansas City Fed's index, released on Thursday, will likely reflect ongoing declines in manufacturing activity. While existing home sales, reported on Wednesday, may show a slight improvement from the prior month, they remain at historically low levels.
Looking ahead, analysts anticipate further softening in the labor market, with the unemployment rate expected to reach 4.5% by the end of the year.
Sector Performance
Source: Bloomberg, Trading Economics
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