The Week Ahead (20 – 24 Oct): Gold, Inflation, TSLA, US Defence, SCT, GATC

It has been a risk-off period for US and global indices lately, as concerns about U.S. regional bank problems and renewed U.S.–China trade tensions have weighed on sentiment. This has reversed generally positive trends for the rest of the month:

The biggest moves have been in the commodity sector, with oil down but gold making a huge weekly gain and surging to new highs above $4,300/oz as investors fled to safe havens amid banking and geopolitical worries.

Investors interested in learning more about investing in gold producers can read my two-part introduction to the sector here & here.

Here's what we can look forward to next week:

Economic Calendar

UK & US inflation

UK September CPI is due from the ONS on 22 October. Expectations are for the CPI to peak around 4.0% year-on-year, driven by higher food & services inflation and sticky wage growth. This is clearly above the BoE's 2% target, which is why the bank has been cautious about further cuts in interest rates.

[All charts in the section: Trading Economics]

This is more likely to surprise to the upside than the downside in the near term due to services & food momentum. We shouldn't be counting on UK interest rate cuts soon, despite many companies reporting weak consumer and business confidence.

In the US, September CPI data has been delayed by the BLS from 15 to 24 October because of the government shutdown. Inflation is expected to start to trend down in the US:

Hence, futures and market signals continue to price some Fed easing in 2025. But the uncertainty from the shutdown raises the risk of an out-of-consensus print, and a surprise could have an outsized impact on any Fed cuts.

US housing & jobs

The other major economic news this week is around US housing and jobs. US initial jobless claims are expected to rise going forward, having been rangebound this year:

The risk of higher claims also looks high here due to soft private indicators, and the threat from the Trump administration to use the current government shutdown to increase public sector layoffs.

In housing, both existing and new home sales will be reported next week. Forecasts are for modest rises in volume, but prices may be more important than the sales numbers:

Again, the risk looks to be to the downside, as weaker employment prospects and long-term interest rates weigh on buyers' minds.

Companies Reporting

As you may expect, given the timing, we are well into the international Q3 reporting season. In the UK, few companies report quarterly, so it is relatively quiet. However, the US will have a huge number of companies reporting, and I've had to limit the list above to the most well-known companies.

Tesla (NSQ:TSLA)

Tesla is often a bellwether for investor confidence in the tech sector. They announced record deliveries of 497k vehicles in Q3, so many may be expecting upside on the $25-26bn revenue and $0.48–$0.54 range for EPS. This is likely behind the recent share price rise to $450:

However, volume isn't everything, and many will be watching the automotive gross margin as this will show whether Tesla's price cuts and mix changes are structurally damaging profitability or whether cost and capex improvements have offset average selling price pressure. Another thing to watch for is any inventory movements to non-arm's-length buyers. For example, recent press coverage revealed deliveries of unsold Cybertrucks to Musk's private companies. This may hide real demand weakness.

Of course, none of this is really going to impact the fundamentals, which reveal that the investment case remains largely an act of faith in Musk to deliver on all of his (much delayed) promises, such as robotaxis and self-driving:

Unsurprisingly, the StockRanks show a High Flyer:

Although I have to doubt how high a quality it is when margins and ROCE are in single figures:

It probably isn't a good short, though, either. A growing cash pile means it is unlikely to face financial pressures in the short term:

And Musk's ability to sell the story and raise capital when needed seems undiminished.

US Defence Stocks

Several of the major US defence stocks will report next week:

Here is how these line up in the Stockopedia head-to-head:

General Dynamics wins with the highest StockRank, but I don't think we can write off even Lockheed Martin, which has the lowest StockRank. This is the cheapest on forward earnings, despite having the fastest growth. Indeed, it is the only stock with a PEG lower than 1:

It also has the highest historical returns on capital, something that will only improve in the short term if earnings grow:

Lockheed Martin also seems to have one of the best recent records of beating expectations:

[Chart: NASDAQ]

And while General Dynamics might have a much higher Momentum Rank, this is backed up by the same record of beating expectations:

[Chart: NASDAQ]

As well as how these companies perform against expectations, there will be key project-related news. At Lockheed Martin, investors will examine the cost and volume dynamics of the F-35 and Sikorsky programs, as well as the conversion of earnings to free cash flow. At Northrop Grumman, investors will be looking at the B-21 production cost trajectory, as any cost overruns here would be material to the economics. RTX has commercial aviation (Collins, Pratt & Whitney) as well as missile defence (Raytheon), so the balance between the two segments will matter. Likewise, General Dynamics produces Gulfstream jets, so deliveries here may matter as much as the profitability of their combat systems.

Overall, this appears to be a sector with high StockRanks, and in an increasingly perilous world, may have much further to go.

UK Stocks

Softcat (LON:SCT)

Softcat is a provider of IT infrastructure, IT solutions and software licenses. They will release their full-year results for the period to July 31st on October 22nd. At the half-year, revenue was up around 17% to £545.6m; however, lower gross margins, combined with higher cost growth, meant that operating profit rose just 10% to £73.7m. In their Q3 trading statement, they said that the business delivered "strong double-digit year-on-year growth in gross profit and operating profit," and management lifted their guidance for FY25 adjusted operating profit from "low double-digit" to "low-teens growth".

This sounds reasonable, but they are on a forward P/E of 22, meaning that the PEG ratio is significantly above 1:

Their revenue growth is a bit lacklustre:

But they have managed to turn that into 11.5% CAGR EPS growth:

Cash conversion is high, meaning that the underlying performance may be a little better than this:

However, despite the upgrade being reflected in brokers' forecasts:

…there is caution from analysts. For example, JPMorgan flagged that recent earnings growth has been aided by large, one-off deals concentrated in a few customers, which may not fully repeat, thus making FY26 comparisons more challenging. They placed Softcat on a "negative catalyst watch."

As with many similar businesses, they have strong returns on capital:

So if they can grow more strongly in the future, this probably won't require much additional capital. There is also a reasonable cash balance, but not so much that it changes the valuation case significantly:

At the end of the day, the valuation is full but not totally bonkers. It prices in continued outperformance, so investors will be keen to see signs of this realised in the upcoming results to prove brokers wrong and keep holding.

Gattaca (LON:GATC)

Personally, my focus next week will be on holding Gattaca. This has done well recently, with smaller specialist recruiters such as this significantly outperforming larger peers in recent times. Indeed, in their recent trading statement, they said:

Improved margin conversion, due to a focus on costs and improved productivity, will result in FY25 Group underlying Profit before Tax in the range of £3.1m to £3.3m (FY24: £2.9m), marginally above current guidance of £3m.

This resulted in a slight increase in FY25 numbers. However, this also saw a reduction in FY26 estimates. To be fair, almost 100% growth in EPS in 2026 always looked out of place in current recruitment markets.

The current forecast of 25% EPS growth looks both more reasonable and achievable. Something they confirmed in their most recent trading statement:

Whilst market conditions continue to be challenging, Gattaca remains focused on its core markets, continuing to improve consultant net fee productivity and the Group's back-office efficiency. As a result of continued demand and enhanced operational efficiencies, the Board expects the Company to perform in line with current market expectation of £4m underlying Profit before Tax for FY26.

For me, the standout metric is this:

Very few recruiters are trading well and are on a discount to TBV, which means the StockRanks marks this out as a SuperStock:

The momentum rank is the weakest as the stock has not been immune to sector-wide worries that have hit the share price recently:

However, Gattaca has bucked that trend for a while now, and confirmation of further in-line trading will likely be greeted positively. There is also the likelihood of brokers introducing FY27 forecasts, and if these show further growth, this may focus investors' minds on the low valuation.

[Disclosure: Mark owns shares in Gattaca (LON:GATC) ]