Wall Street Brunch: Jobs Or Earnings? (undefined:NKE)

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Economists expect the 144K jobs added in September. (0:29) Nike may rip off the Band Aid. (1:49) OpenAI losses. (3:30)

The following is an abridged transcript:

This week asks a tough question about what the stock market cares about. The economy or corporate earnings.

Usually the monthly jobs report would be the no-brainer for a headliner. But with the cool inflation data from the core PCE index on Friday and no October Fed meeting, investors may be digging into earnings – as thin as they are.

Right now the market is pricing in a little more than a 50% chance that the Fed cuts rates by 50 basis points again in November. But with more inflation and jobs data to come before the decision, the FOMC can afford to bide its time.

Clark Bellin of Bellwether Wealth says Friday’s core PCE print was “yet another data point showing that there is no need for interest rates to be so much higher than the rate of inflation.”

“Many investors may still be holding too much cash thanks to attractive yields on money markets over the past few years, but as the Fed cuts rates, we believe it’s important for investors to think about a strategy for how to re-deploy that cash into the markets over time.”

The jobs report hits Friday, with economists expecting that nonfarm payrolls rose by 144,000 in September. The unemployment rate is expected to stay at 4.2%, with average hourly earnings rising 0.3% for the month.

While the labor market has been the main concern about the health of the economy, the Fed deciding come out swinging with a half-point cut to start the easing cycle afford an opportunity to look at corporate earnings.

And while earnings season is still a week away, there are important numbers from Nike (NYSE:NKE) ahead. And investors will pay attention to the goddess of victory.

The athletic apparel giant is forecast to report a year-over-year drop in revenue of 8.5% to $11.65 billion, driven lower by weakness in North America.

Footwear revenue is expected to be down 9.4% during the quarter, and apparel revenue is seen falling 7.9%. Nike is also expected to disclose a gross margin rate of 44.4%, operating income of $882.1 million, and EPS of $0.52.

Shares of Nike have been in rally mode after the recent announcement that Elliott Hill was returning to the company to be the new CEO. Hill has an all-hands employee meeting planned for October 14 on his first day on the job.

However, before Hill takes the reins, analysts are wary that Nike could rip off the Band-Aid with its FQ1 and full-year guidance update to rattle investors. The company frequently issues its guidance during the earnings conference call and provides an in-depth outlook by region and product type.

The update from management on trends in China will also be closely watched by other consumer companies with a higher exposure to the nation, including Starbucks (SBUX), Estee Lauder (EL), and Skechers (SKX).

Also on the earnings calendar, Carnival (CCL) reports Monday.

Joining Nike on Tuesday are Paychex (PAYX), McCormick & Company (MKC), Lamb Weston (LW) and Cal-Maine Foods (CALM).

Levi Strauss (LEVI), RPM International (RPM) and Conagra Brands (CAG) weigh in on Wednesday.

Constellation Brands (STZ) is up Thursday.

In the news this weekend, OpenAI expects to lose roughly $5 billion this year, despite generating about $3.7 billion in sales as the firm behind ChatGPT grapples with rising costs.

First reported by The New York Times, the numbers also indicate that OpenAI, one of Silicon Valley’s hottest tech startups, intends to generate $11.6 billion in revenue next year and $100 billion in 2029, with aggressive price hikes planned for ChatGPT.

By the end of the year, the company expects to raise the ChatGPT monthly fee by $2 to $22 before increasing it to $44 over the next five years.

But OpenAI is expected to remain in the red this year, driven by costs related to running its services, employee salaries, office rent and other expenses.

And in the Wall Street Research Corner, Goldman Sachs rebalanced its basket of 50 stocks with the highest consensus expected return on equity.

Strategist David Kostin says the median stock in the basket has expected ROE of 15% against 2% in the median S&P 500 stock.

The stocks include Netflix (NFLX), Electronic Arts (EA), Tesla (TSLA), Tyson Foods (TSN), Coterra Energy (CTRA), International Paper (IP), Humana (HUM), Southwest Airlines (LUV), Super Micro Computer (SMCI) and Dominion Energy (D).