Investors received a pre-Halloween scare on Wednesday as markets plummeted on fears that an aggressive Fed is overstepping its bounds. Intraday charts of all the major averages resembled a ski slope as the DJIA and S&P 500 finished off around 3%, and the Nasdaq was down over 4%. Traders are afraid the Fed has laid out a detailed and aggressive rate raising campaign that appears to ignore possible changes in economic reality. The Nasdaq has been especially hard hit, as investors rotate out of growth stocks and seek safe havens in consumer staples and bonds.  

Thursday investors will react to earnings from Walgreens Boots Alliance (WBA) and Delta (DAL). Walgreens has been a beneficiary of the slowing growth story. The stock has been moving steadily higher as tech stocks have been moving lower the past few weeks. Analysts will be looking for any hint from the retailer that rising rates are beginning to impact consumer spending habits. Rising fuel costs, and the impact of both Hurricane Michael and Hurricane Florence, will certainly be topics for discussion when Delta reports earnings on Thursday. Fuel costs have risen steadily in September, and in reaction, Delta’s stock has been steadily losing altitude going into earnings. Analysts will now be questioning the rosier outlook for Q4 painted last quarter by the airline’s CEO.

 

CPI and jobless claims will both be released Thursday morning. The CPI number, which is expected to come in at a modest .2% will play into interest rate discussions. The spotlight on Friday may fall less on the economic numbers released Friday morning, including import/export prices and consumer sentiment, and more on three speeches given by Fed officials during the day. Speaking at various conferences, Chicago Fed President Charles Evans speaks at 9:30, just as the market opens, followed by Atlanta Fed President Raphael Bostic at 12:30. Federal Reserve Vice Chairman for Supervision Randal Quarles is giving a speech Thursday night in Indonesia. Analysts will be looking for any sign from the Fed officials that their announced policy is flexible. Remaining silent on the matter will likely continue to fuel the negative tone set in the markets Wednesday.

Friday will be a big day for earnings as several large banks report. Operational concerns may be pushed to the back burner as analysts will question Citigroup (C), J. P. Morgan Chase (JPM) and Wells Fargo (WFC) about rising interest rates. How they see the current rate increase plan playing out in their earnings will be noteworthy. All three companies came under pressure Wednesday as the market fell. While generally rising rates would be considered a positive for the large banks, that will not be the case if rates rise too quickly and send the economy into a recession. This is historically the weakest quarter for banks. Barring any surprises in the numbers, investor interest will be more focused on whether the banks see a fragile or robust economy headed into the end of 2018 and beyond.

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