Morning in New York: How Will the Fed Minutes Benefit Investors?

A daily review and forecast of events in the U.S. stock market by Mikhail Denislamov, Deputy Director of Capital Markets Research at Freedom Broker.

On Wednesday, the minutes from the September meeting of the Federal Open Market Committee (FOMC) of the U.S. Federal Reserve will be released. They may prove to be less significant for interest rate forecasts than usual. The discussion took place before the release of the downwardly revised PCE data and the weak Labor Department report for September; taking these into account, the probability of a monetary policy tightening in October has fallen from about 70% to 20%. In this context, hawkish rhetoric may be perceived as out of touch, especially since John Williams, president of the Federal Reserve Bank of New York, stated after the September meeting that there was no need to rush into raising rates.

Nevertheless, the minutes are useful for understanding the level of support among committee members for further tightening of monetary conditions, the risks that shaped its September decision, and the conditions that members considered necessary for further rate hikes. It is particularly important to assess the extent to which the regulator’s position was based on the most recent inflation and labor market indicators available at the time. The release will primarily help clarify the balance of opinions within the FOMC, but it will not provide any new direct indication of the decision to be made following the October meeting.

This Wednesday, the MBA will release its weekly statistics on mortgage applications, which will help assess the state of demand for housing and mortgage loans amid high interest rates.

Over the past two trading sessions, the performance of the SPY and the equally weighted RSP has become noticeably more synchronized, which can be viewed as a tentative sign of improving market breadth and a reduction in the indices’ dependence on the largest technology companies. However, pressure from the bond market persists: the yield on 30-year Treasuries continues to trend upward and is currently testing the 5.7% level, limiting the potential for further expansion of valuations.

After the market closes, Applied Digital (APLD), Richardson Electronics (RELL), Resources Connection (RGP), and Levi Strauss & Co. (LEVI) will report their financial results.

Futures on major U.S. indices are down 0.2–0.5%. Traders are awaiting the release of the FOMC minutes and are reacting to corporate news from the previous day. Uncertainty remains tied to the situation in the Middle East. Against this backdrop, we forecast moderate volatility and assess the risk balance as neutral.

— The Financial Times reported on SpaceX’s (SPCX) plans to raise $40 billion to purchase Nvidia (NVDA) chips. Elon Musk’s company intends to secure approximately $10 billion in bank loans and $30 billion through the issuance of investment-grade debt securities. Apollo Global Management (APO) is likely to act as the lead arranger for the deal. Pimco is named among the potential lenders. Against this backdrop, SPCX shares are down about 2%, while NVDA shares are showing virtually no movement.

— Constellation Brands (STZ) shares are down 4.7%, even though the company’s quarterly revenue exceeded expectations by about 3.5% and earnings per share also came in above forecasts. The positive aspects of the earnings report were offset by a 2% and 5% decline, respectively, in sales of Modelo Especial and Corona Extra through distributors, a deterioration in the beer business’s margins, and the lack of an upward revision to the annual earnings forecast.

— Neogen Corporation (NEOG) shares rose 11% in response to a 6.5% year-over-year increase in quarterly revenue, despite a net loss. Investors reacted positively to the upward revisions to revenue and adjusted EBITDA forecasts for fiscal year 2027.

— Penguin Solutions (PENG) shares are up 8% as the AI data center infrastructure provider’s adjusted earnings per share (EPS) for the most recent reporting quarter exceeded market expectations by nearly 30%.

At the close of trading on October 6, most U.S. stock indices ended the day mostly higher. The S&P 500 gained 0.58%, hitting a new intraday high, while the Nasdaq 100 rose 0.48%, the Dow Jones rose 0.49%, while only the Russell 2000 fell 0.59%. The yield on 10-year Treasuries fell by about 3 basis points, and the VIX “fear index” dropped to 15 points.

The utilities sector (XLU: +2.98%) led the way following news of a 20-year agreement between Constellation Energy (CEG: +12.2%) and Alphabet (GOOGL). The contract calls for the modernization of existing nuclear reactors, which is expected to provide an additional 890 MW of capacity, thereby increasing the predictability of Constellation Energy’s revenue. The agreement underscores the demand from tech giants for electricity to power AI data centers. This has had a positive impact on the stocks of other electricity providers, including Vistra (VST: +10.8%) and NRG Energy (NRG: +7%), as expectations of similar agreements are factored into their share prices. At the same time, the sector ETF XLU—even after yesterday’s gains—is trading 7.2% below its 200-day moving average and remains the weakest in this regard, which provides the fund with significant potential for a reversal in capital flows.

Growth in the technology sector (XLK: +0.53%) was mixed. It was supported by chipmakers as well as companies in the cybersecurity sector. At its investor day, Marvell Technology (MRVL: +9.4%) provided a revenue forecast for fiscal year 2028 in the range of $20 billion, of which $18 billion is expected to come from data centers. The company plans to increase revenue to $70–90 billion for fiscal year 2031, with EPS exceeding $30. Against this backdrop, the assessment of the business’s long-term potential has risen significantly, given the demand for custom AI accelerators and high-speed connections.

Shares of memory chip and storage device manufacturers, including Western Digital (WDC: −7%), Seagate Technology (STX: −9.2%), SanDisk (SNDK: −2.6%), and South Korea’s SK Hynix (SKHY: −6.4%), remained under pressure. Investors are concerned that expanding production will eventually ease the shortage of these companies’ products and limit price growth, which currently supports the sector’s earnings.

In addition to corporate factors, statements by Fed officials remain an important context for the market. Michelle Bowman, a member of the Fed’s Board of Governors, outlined the parameters for reforming banking supervision. Plans include strengthening the personal liability of executives and revising the asset thresholds that determine the stringency of requirements for banks. Jeffrey Schmid, president of the Federal Reserve Bank of Kansas City, in turn, cautioned against viewing the oil shock as a temporary phenomenon amid high inflation and suggested the possibility of further policy tightening, including a reduction in the Fed’s balance sheet.

This article was AI-translated and verified by a human editor