The labor market, inflation, a weight loss drug update, and earnings from a central figure in the AI trade will take center stage in the week ahead. The fresh jobs and inflation data will arrive as Wall Street debates whether the Federal Reserve's first interest rate hike in three years will be the start of a prolonged tightening cycle, or something shorter-lived. This week's releases cover both sides of the Fed's dual mandate of maximum employment and stable prices, creating the possibility of a volatile stretch for rate-hike expectations.
Earnings from Club name Micron on Wednesday night will test the rebound in AI stocks that began in mid-September, in the wake of a brief sell-off stemming from growing concerns about AI safety risks. Eli Lilly will also shine a spotlight on the next phase of the obesity drug race. Here's a closer look at what to expect.
1. Jobs, jobs, jobs: Friday's nonfarm payrolls report for September is the biggest economic report of the week. It will be preceded by the so-called JOLTS report — the Job Openings and Labor Turnover Survey — on Tuesday morning and payroll processor ADP's private hiring report on Wednesday. The JOLTS, which measures tightness in the labor market and the rate of people quitting their jobs, is relatively stale, covering the month of August; this contributes to it being the least important of the three. The ADP data is for September, making it an appetizer for the government's official release Friday. Consensus is for 58,000 private-sector jobs additions, according to FactSet. For the nonfarm payrolls report, economists polled by FactSet expect a gain of 82,500 jobs in September, with the unemployment rate unchanged from 4.1% in August. The August jobs report was much stronger than expected and likely contributed to the Fed's decision to raise rates by a quarter-percentage point at its September meeting, in the face of inflation still running above its 2% target.
In explaining why the Fed went from holding rates steady in July to a September increase, Fed Chairman Kevin Warsh said, "There's been a pretty wide-ranging set of data, including in the labor markets, that the economy has strengthened." The Fed's interest rate hikes are supposed to help cool inflation by raising borrowing costs and slowing economic activity. It's a blunt tool, but the central bank cannot reopen the Strait of Hormuz and get energy supplies flowing in their pre-war patterns; nor can it directly force companies to moderate their capital investments to build new data centers or manufacturing plants. As long as those inflationary forces remain intact and economic activity remains resilient in other areas, the Fed's job of delivering stable prices gets harder and makes additional interest rate hikes more likely. Indeed, traders increased their bets last week on additional tightening at upcoming Fed meetings after S & P Global's monthly look at U.S. manufacturing and services activity, known as purchasing managers' indexes (PMIs), came in way above expectations. A hot jobs report on Friday could have a similar effect. As of Sunday, traders are pricing in a 66% chance of a quarter-point hike at the Fed's late October meeting and a roughly 50-50 chance of another increase in December.
2. Inflation data: Two days before the jobs report, we'll get the August personal consumption expenditures (PCE) price index — also known as the Fed's preferred inflation gauge. The PCE is expected to show a 0.4% month-over-month rise and a 3.8% annual gain, according to FactSet. On a core basis, which strips out more volatile food and energy prices, economists project a 0.3% monthly gain and a 3.4% year-over-year increase. The Fed pays closest attention to core PCE, on the belief that it's more representative of underlying inflation trends. Some of the data used to calculate the PCE index is contained within the Bureau of Labor Statistics' consumer price index (CPI) and producer price index (PPI). The August CPI and PPI were published before the time of the Fed's September hike, so central bankers were able to infer what the PCE might show. "This summer's inflation readings do not tell me that underlying trends have meaningfully improved," Warsh said. That doesn't mean the August PCE is without intrigue, though. The Bureau of Economic Analysis publishes the PCE within its monthly personal income and spending report, and the agency plans to issue updates to its methodology this time around. The BEA is changing how it tabulates spending on financial services such as portfolio management, computer software and accessories, and legal services. The agency will issue retroactive data through the first quarter of 2021. In a blog post last week, economists at RBC Capital Markets predicted updates to the PCE methodology may well result in "a one-time shift in measured inflation in the U.S., resulting in a lower-than-expected reading." However, they added, "Importantly, we caution against misinterpreting a lower-than-expected reading on Wednesday as a sign of disinflation ahead."
3. Micron earnings: The results from Micron on Wednesday night are sure to be market-moving, not just for the company's own stock, but for the broader AI trade. Demand for Micron's memory chips can be extrapolated to the demand for AI computing overall. Recall, agentic AI systems like Meta's Muse require a ton of high-bandwidth memory (HBM) in order to maintain context throughout their tasks. As demand and adoption of agentic AI grows, so too does demand for memory. The debate isn't about current demand, but the durability of the current investment cycle. How long will the industry remain supply constrained and, in turn, be able to hold onto immense pricing power and fat profit margins? Supplies will eventually catch up, and demand will become more satiated. So, it's less about whether prices will ever come down, and more about when that will happen. Micron's conference call is expected to be dominated by these questions. Analysts at Bank of America said hyperscalers recently agreed to pay more for memory in the first half of 2027, compared with the fourth quarter of 2026. Nevertheless, "despite increased near-term pricing optimism, we still model memory pricing to potentially decline 10%+ in [calendar 2028]," they wrote in a Sept. 22 note to clients. Micron has sought to add durability to the cycle by inking strategic customer agreements (SCAs). When Micron reported fiscal third-quarter results in June, the company said it had 16 of these take-or-pay contracts with customers. CEO Sanjay Mehrotra told Jim Cramer on Aug. 20 that Micron has since signed additional SCAs, without giving a new number; we hope to get that figure Wednesday night. These contracts allow Micron to invest in the capacity needed to increase output, while protecting itself from waning customer demand in the future, as the AI buildout plays out. Investors will pay close attention to SCA commentary because the deals provide increased transparency into a portion of future revenues — revenues that the customer is contractually obligated to pay, whether they want or need the chips. To be sure, SCAs alone will not be enough to offset cycle weakness should AI investment slow more broadly. "We do not believe SCAs alone justify multiple expansion or fully protect against a downturn," BofA analysts wrote. "If AI capex remains durable, MU's earnings power and valuation remain compelling; if AI spending weakens, customer purchases and future capacity additions will both adjust." Weakness isn't a risk this earnings season, but we are calling it out to clarify that, while SCAs help with cycle durability, our investment is about true demand, not contractually obligated future revenue streams based primarily on demand projections. Analysts at Rosenblatt note that they expect to see a sequential increase in the number of SCAs, with the agreements accounting "for up to 40% of the bits produced in the next 3–5 years." We'll also be listening for anything management is willing to offer up on future buybacks. Micron is currently restricted from conducting a large-scale buyback due to its acceptance of CHIPS Act grants. That restriction, however, is set to expire on Dec. 9, unleashing a potential monstrous buyback program. The free cash flow generated over the past year alone is enough to repurchase 8% to 10% of shares outstanding, BofA estimates. As of Friday, Micron is expected to report earnings per share of $31.49 on revenue of $50.9 billion, according to estimates compiled by LSEG. But, keep in mind, a beat with better-than-expected guidance is what we really need to see for the stock to react positively. Shares are up 17% since Sept. 14, the day of our most recent buy. But they're still down 11% from their all-time closing high on June 25, which came after third-quarter earnings. We initiated our position on Aug. 11, with the stock up almost 25% since that day.
4. Lilly updates: Outside of earnings, we'll also hear from Eli Lilly at the annual meeting of the European Association for the Study of Diabetes. The drugmaker will release trial data for a couple of important pipeline assets for diabetes care: Late-stage results for retatrutide examining the once-weekly injection in adults with obesity and type 2 diabetes. Lilly released topline results for this trial in July. The conference presentation goes deeper into the results, enabling more holistic analysis. Mid-stage results for eloraTZP, a combination therapy of eloralintide and tirzepatide, in adults with obesity and type 2 diabetes. Tirzepatide is the active ingredient behind Lilly's Mounjaro for diabetes and Zepbound for obesity. In this trial, it's paired with the yet-to-be-approved eloralintide. Late-stage results for Foundayo in obese adults with type 2 diabetes at increased cardiovascular risk. While Foundayo is currently approved by the FDA for obesity treatment, it has yet to be cleared for diabetes. It may happen later this year, with CEO Dave Ricks telling CNBC last week that it will represent "a big expansion" for Foundayo. Complete late-stage results for Mounjaro in a head-to-head study versus Lilly's own Trulicity examining its ability to reduce severe heart-related complications such as heart attacks, strokes and death. In a note to clients earlier this month, analysts at Leerink said they are most interested in the EloraTZP update, saying they're hopeful that it "can offer a better weight loss to tolerability ratio than high-dose tirzepatide." They expect the combination to move into late-stage trials in the coming months. Eloralintide mimics a hormone produced in the pancreas, known as amylin, to help your brain feel more full. Tirzepatide, on the other hand, works to curb appetite, slow digestion, and improve the insulin response by mimicking hormones in the gut, known as incretins. In particular, Lilly's tirzepatide mimics the GLP-1 and GIP hormones. The hope is that by combining drugs that target both amylin and incretin hormones, they could work in a complementary manner, potentially delivering better weight loss with fewer side effects. Lilly is also studying eloralintide as a monotherapy, with late-stage results for that trial expected out in 2028.
Week ahead
Monday, Sept. 28
Dallas Fed Index at 10:30 a.m. ET
Before the bell: No earnings reports of note
After the bell: Jefferies Financial (JEF)
Tuesday, Sept. 29
FHFA home price index at 9 a.m. ET
August JOLTS report at 10 a.m. ET
The Conference Board's consumer confidence survey at 10 a.m. ET
Before the bell: Carnival (CCL), CarMax (KMX)
After the bell: Concentrix (CNXC)
Wednesday, Sept. 30
ADP employment survey at 8:15 a.m. ET
PCE price index at 8:30 a.m. ET
Before the bell: Conagra Brands (CAG), Jabil (JBL), FactSet (FDS), Cal-Maine Foods (CALM)
After the bell: Micron (MU)
Thursday, Oct. 1
Initial jobless claims at 8:30 a.m. ET
Before the bell: Accenture (ACN), Acuity (AYI), McCormick (MKC)
After the bell: Nike (NKE)
Friday, October 2
Nonfarm payrolls report at 8:30 a.m. ET
