U.S. stock futures pointed lower on Friday as investors braced for a series of significant earnings reports from major banks, including JPMorgan Chase and Wells Fargo. Additionally, Tesla is set to unveil its highly anticipated robotaxi in an event in Los Angeles. In a related move, Warren Buffett’s Berkshire Hathaway has reduced its stake in Bank of America below a critical threshold.
1. Futures Drop
U.S. stock futures hovered below the flatline on Friday, with investors awaiting the earnings reports from prominent Wall Street banks and analyzing recent inflation data. As of 03:48 ET (07:48 GMT), Dow futures had fallen by 46 points (0.1%), S&P 500 futures were down 8 points (0.1%), and Nasdaq 100 futures dipped by 37 points (0.2%).
The previous session closed in the red, following Labor Department data that indicated stronger-than-expected price growth in September. Additionally, first-time claims for unemployment benefits exceeded economists’ projections, raising concerns about the economy’s direction.
These indicators come as the Federal Reserve aims to achieve a “soft landing” for the U.S. economy, balancing inflation control without triggering a severe downturn in the labor market. Following a significant 50-basis point interest rate cut last month, the Fed is anticipated to implement a more traditional 25-basis point reduction at its next meeting in November, with a current probability of approximately 86%, according to the CME Group’s FedWatch Tool. There is a 14% chance that rates will remain unchanged at 4.75% to 5.00%.
2. Upcoming Bank Earnings
Investors are particularly focused on earnings reports from JPMorgan Chase and Wells Fargo, which are expected to initiate the latest earnings season for the U.S. banking sector. Analysts predict that both banks will report a decline in third-quarter profits, likely due to a decrease in net interest income as borrowing costs fall.
Net interest income, the difference between what banks pay for deposits and earn from loans, has benefitted from previous Fed interest rate hikes aimed at curbing inflation. However, forecasts from these banks will be crucial as the Fed potentially enters a cycle of easing, which could further impact net interest income but may also stimulate increased borrowing and deal-making.
Analysts expect that the investment banking units of these banks will see growth due to a rise in debt issuance and initial public offerings. Market volatility is anticipated to boost trading revenues, although typically, revenues in the third quarter lag behind those of the preceding quarter, as noted by Moody’s analysts.
3. Tesla Unveils “Cybercab”
Tesla shares fell in premarket trading on Friday following the company’s announcement of its long-awaited “Cybercab” robotaxi. CEO Elon Musk, who showcased the vehicle during the Los Angeles event, offered limited details on critical technological aspects.
The Cybercab, designed without a steering wheel or pedals and accommodating two passengers, is projected to enter production before 2027 with a price tag below $30,000. However, Musk cautioned that the service would face various regulatory hurdles.
Since announcing the “robotaxi day” in April, Tesla’s shares have surged, with Musk projecting that the new offerings could elevate the company’s valuation to as high as $5 trillion, compared to its current valuation of over $748 billion. Musk asserted that the autonomous vehicle would be “ten times” safer than human drivers, claiming it would “save lives.”
The event also featured a prototype of the “Robovan,” an autonomous vehicle that can seat up to 20 people, alongside an updated model of the humanoid robot named “Optimus.” Tesla’s focus on artificial intelligence and autonomous driving comes as it faces intensifying competition in China and slowing sales in Western markets.
4. Buffett’s Berkshire Hathaway Reduces Bank of America Stake
Warren Buffett’s Berkshire Hathaway has further reduced its holdings in Bank of America, bringing its stake below 10%. The conglomerate sold 9.5 million shares, valued at approximately $382 million, according to a regulatory filing.
This adjustment means that Berkshire’s holdings fall below a key threshold set by the Securities and Exchange Commission, which mandates the disclosure of stock transactions within two business days. Consequently, Bank of America investors may have to wait until Berkshire’s quarterly financial reports to determine if more shares have been sold.
5. Oil Prices Experience Volatility
Oil prices showed volatility on Friday but remained on track for a second consecutive weekly gain as investors assessed the effects of hurricane damage in the U.S. and ongoing tensions in the Middle East.
As of 03:47 ET, Brent crude had slipped 1.1% to $78.57 per barrel, while U.S. crude (WTI) traded 1.1% lower at $75.05 per barrel. Despite the drop, both benchmarks are poised for weekly gains of around 1%.
Hurricane Milton caused significant destruction across Florida, leaving millions without power and potentially dampening fuel consumption in the world’s largest oil producer. Additionally, traders remain alert to the possibility of escalating conflicts in the Middle East, particularly concerning potential Israeli strikes on Iranian oil facilities.
