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After ending a nine-week rally to start 2024, stocks returned to winning territory last week.
All three major indexes rose in the first full trading week of the year, led by a 3% rise in the Nasdaq Composite Index (^IXIC), while the S&P 500 (^GSPC) ended with less than 13 points, or about 0.3%. Did. Far from the all-time high. To cap off the week, Microsoft (MSFT) also overtook Apple (AAPL) to become the world’s most valuable company.
Over the coming week, investors will be hoping to maintain this momentum even in a holiday-shortened week.
With US markets closed on Monday for Martin Luther King Jr. Day, financial sector results and Wednesday’s retail sales data will be the main catalysts for the calendar.
Retail sales are expected to grow 0.4% in December from November’s 0.3% rise, as U.S. consumers continue to drive a surprisingly sustained economic expansion.
Bank of America economist Michael Geipen wrote that the company expects the government to apply seasonal adjustments to the December numbers, which will lead to “robust” retail sales.
“We’ve taken a step back,” Gapen said, adding: “We think spending is healthy but not spiking.” The company currently expects GDP to trend toward an annualized growth rate of 1.2% in the fourth quarter.
Elsewhere on the economic calendar, Thursday’s first jobless claims data and Friday’s University of Michigan Consumer Sentiment Survey will be worth watching closely by investors.
Aside from the earnings and economic calendar, Monday’s Iowa caucuses will mark the official start of the 2024 U.S. presidential election. On the geopolitical front, rising tensions in the Red Sea, with the United States and its allies carrying out daily airstrikes in Yemen last week, have attracted investors’ attention.
Next week’s major earnings reports are scheduled for Tuesday morning, with investment banks Goldman Sachs (GS) and Morgan Stanley (MS) following a difficult year for their deal-making businesses, which have been marked by earnings calls. We are planning to announce financial results.
“I think the investment banking story is important,” Ken Leung, CFRA’s director of research, told Yahoo Finance Live on Friday. [next week] Again, last year would have been the trough of the cycle. ”
On Friday, major money center banks such as JPMorgan (JPM), Wells Fargo (WFC), Bank of America (BAC), and Citi (C) all reported fourth-quarter and annual results, with JPMorgan It posted annual profits of nearly $50 billion and announced plans for Citi. Highlights include cutting 20,000 jobs and cutting costs by an additional $2.5 billion.
Friday’s earnings season kickoff also featured the results of Delta Air Lines (DAL), which disappointed investors, sending the company’s stock down nearly 9% and also dropping shares of peers United Airlines (UAL) and American Airlines (AAL). did.
Different signals about inflation
Inflation data last week showed consumer prices were firmer than expected in December, while producer prices were slower than expected.
Nancy Vanden Houten, chief U.S. economist at Oxford Economics, warned in a note to clients on Friday that Red Sea-related disruptions pose “upside risks” to the firm’s inflation forecast.
Investors are focused on how each increment in inflation data will affect the Federal Reserve’s plans to cut interest rates this year, but last week’s data gave some confidence that the rate-cutting process will begin in March. It became stronger.
Investors are pricing in a 77% chance that the Fed will cut interest rates by 0.25% in March, up from a 65% chance reflected last week after the strong December jobs report, according to CME Group data.
Barclays economists led by Jonathan Miller said on Friday: “We have adjusted our baseline assumptions to assume the FOMC will begin to cut interest rates in steps every other meeting starting in March, two meetings earlier than previously.” said.
He added: “This primarily reflects a downward revision in core PCE price inflation, which significantly increases the likelihood that the FOMC’s monthly indicators will remain relatively weak from this action through February. “Nonetheless, we believe the March results are much closer than expected.” There is about an 80% chance that the market will price it in. ”
Barclays also expects interest rates to advance at a “much slower” pace than the market is pricing in. Miller and his team expect rates to fall by 1% by the end of 2024, with the market expecting a rate cut of closer to 1.5%. The current federal funds rate is in the range of 5.25-5.50%.
Earnings themes to watch
The financial sector is in the spotlight as the earnings season begins.
But the big market story in 2023 focused on tech stocks, particularly the mega-cap leaders of the Magnificent Seven, which led the Nasdaq to rise more than 40%.
Results for these names and other tech industry heavyweights will start trickling in later this month.
And with valuations in the technology (XLK) sector soaring in anticipation of an AI-driven profit cycle, the sector’s performance will be of particular interest to investors.
The technology sector’s forward P/E ratio of 27 times is the second highest of all sectors in the S&P 500, according to Bank of America data as of the end of 2023, and valuations have risen even as the sector’s profits have declined. Real estate (XLRE) was the only one. suddenly traded at higher valuations (39). The entire S&P 500 is trading at 19.8 times next year’s expected P/E.
With technology accounting for more than 28% of the S&P 500’s market capitalization, these results will have a significant impact on the overall direction of the index.
FactSet’s John Butters said in a note released Friday that S&P 500 companies have provided negative guidance for fourth-quarter earnings that are slightly above the recent five-year and 10-year averages. The 111 companies that make up the index are warning the public about their future financial results. Looking at these warnings by sector, technology stands out.
Twenty-five companies in the tech industry have warned that fourth-quarter earnings will be lower than expected, higher than the 10-year average of 19 companies in the industry that issued similar warnings, according to FactSet data. Overall, this sector has 64 companies in its S&P 500 membership.
Now, sector-level nuances become a challenge, especially when it comes to the name of the Magnificent Seven. Meta Platform (META) and Alphabet (GOOG, GOOGL) are components of the Communications Services (XLC) sector, while Amazon (AMZN) and Tesla (TSLA) are classified as Consumer Discretionary (XLY) names.
But all of these stocks are components of the Nasdaq, the market’s bellwether of investor sentiment.
And with the “tech industry” playing a monolithic role in the minds of many investors last year, it wasn’t until reports from these names started coming in that the party was in full swing heading into Q4 earnings season. It will probably never start.
weekly calendar
Monday
Economic data: Market closed for Martin Luther King Jr. Day
Revenue: Market closed for Martin Luther King Jr. Day
Tuesday
Economic data: NY Fed Empire Manufacturing, January (forecast: -4, previous: -14.5)
Revenue: Goldman Sachs (GS), Morgan Stanley (MS), PNC Financial (PNC), Interactive Brokers (IBKR)
Wednesday
Economic data: Retail sales, December (forecast +0.4%, previous +0.3%). Retail sales (excluding autos and gasoline), December (+0.3% expected, +0.6% previously). MBA home loan applications week of January 12 (previously up 9.9%). Import price index for December (forecast -0.6%, previous -0.4%). Export price index for December (forecast -0.7%, previous -0.9%). Industrial production, December (0% expected, +0.2% previously). Corporate inventories, November (forecast -0.1%, previous -0.1%).federal reserve beige book
Revenue: Charles Schwab (SCHW), Alcoa (AA), Discover (DFS), US Bancorp (USB), Kinder Morgan (KMI), Citizens Financial (CFG), Prologis (PLD)
Thursday
Economic data: Number of first-time unemployment insurance claims for the week of January 13th (expected 205,000, previously 202,000). Housing starts, December (-8.7% forecast, +14.8% last time). Number of building permits in December (forecast +0.9%, -2.5% last time). Philadelphia Fed Business Outlook, January (previous -7, previous -12.8)
Revenue: PPG (PPG), Fastenal (FAST), Bank OZK (OZK), Keycorp (KEY), JB Hunt (JBHT), M&T Bank (MTB), Northern Trust (NTRS)
Friday
Economic data: University of Michigan consumer sentiment, preliminary figures for January (expected 69.3, previous 69.7). University of Michigan’s 1-year inflation expectations, January (previously 3.1%). Used home sales, December (forecast +0.3%, previous +0.8%)
Revenue: Travelers (TRV), State Street (STT), Regions Financial (RF), Ally (ALLY), Comerica (CMA), Fifth Third (FITB), Huntington Bancshares (HBAN)
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