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Stock market investors will take cues from a series of important events over the coming week, including the Federal Reserve’s monetary policy meeting, the closely watched December jobs report, and an onslaught of earnings for mega-cap technology companies. It might be. Economic situation and interest rate outlook.
The benchmark S&P 500 index SPX closed at its fifth consecutive trading day high on Thursday, the longest such session since November 2021. The index ended slightly lower on Friday, posting a weekly gain of 1.1%, while the Nasdaq Composite Index rose. The index rose 1% for the week, while the blue-chip Dow Jones Industrial Average DJIA rose 0.7%, according to Dow Jones Market Data.
“What we’re seeing is that market participants are still trying to catch up from 2023 and put money aside and work,” said Robert Schein, chief investment officer at Blanke Schein Wealth Management. It means that we are doing well,” he said.
“Wall Street is still fighting back to extract profits as quickly as possible, so it’s very short-term oriented until there’s a big market-moving event,” he said, adding that any event could be “unfortunate. There’s a good chance it will happen,” he added. This is the Fed’s speech. ”
Fed Chairman Jerome Powell has good reason to hold off on rate cuts
Expectations that the Federal Reserve will begin easing monetary policy as early as March after its fastest tightening cycle in 40 years are fueling gains in U.S. stock and bond markets. According to the CME FedWatch tool, investors are now looking forward to 5-6 quarter point rate cuts through December, with the federal funds rate expected to rise 4-4% from its current range of 5.25-5.5%. It is expected that the rate will be lowered to around 25%.
look: Economic growth shown in fourth quarter GDP confirms Fed’s cautious stance on interest rate cuts
No interest rate changes are expected at the central bank’s first policy meeting of the year, but some market analysts believe that Fed Chairman Jerome Powell’s comments at Wednesday’s press conference have changed market expectations and raised expectations for a March rate cut. We believe that there is a high possibility that this will lead to a setback. .
Macquarie global currency and rates strategist Thierry Wismann said the stock market rally, “too dovish” signals from December’s Fed meeting, a labor market that remains resilient and the escalating Middle East conflict are , said it could be an indication that Powell must maintain policy. “[monetary] Next week is “Tightening Bias.”
Wisman said in a Friday phone interview with MarketWatch that while the labor market has not weakened as much as Fed officials had hoped, the stock market rally “could backfire” due to easing financial conditions. told Watch.
Further complicating matters, he said, concerns that inflation could spike again in light of conflicts in the Middle East and the Red Sea could strengthen the Fed’s cautious approach to rate cuts.
look: Oil traders are not panicking over Middle East shipping attacks. Here’s why:
Meanwhile, Wisman said the Fed still needs to shift to an “accommodative bias” before actually cutting rates, so a shift to a “neutral bias” automatically means the Fed will immediately lower interest rates. He said it was not something he would do. “I think the market has become too dovish and doesn’t realize that the Fed has a very good reason to be pushing this.” [the first rate cut] Until June. ”
Market “pays attention” to January’s employment statistics
Patrick Ryan, head of multi-asset solutions at Madison Investments, said labor market data could also shake up U.S. financial markets over the coming week and be a “huge mover” for the economy.
Investors are looking for clear signs of a slowdown in the labor market, which could prompt the central bank to start cutting interest rates as early as March. That bet could be tested as early as Friday when nonfarm payrolls for January are released.
U.S. employers added 180,000 jobs in January, down from a surprisingly strong 216,000 in the final month of 2023, according to a Wall Street Journal survey of economists. ing. The unemployment rate is expected to rise to 3.8% from 3.7% last month and will continue to do so. This is the lowest in almost half a century. Wage growth is expected to slow slightly to 0.3% in January, after a solid 0.4% rise in December.
“This is going to keep everyone focused,” Ryan told MarketWatch by phone Thursday. “Any indication of material weakness in the labor market would lead us to question whether the stock market is willing to trade at more than 20 times (earnings) this year,” according to FactSet data. As of Friday afternoon, the S&P 500 was trading at a P/E ratio of 20.2.
6 of the Magnificent 7 stocks could continue to boost S&P 500 returns
This week is also packed with earnings results from some of the biggest tech companies that have fueled the stock market’s rise since last year.
Five of the so-called Magnificent Seven technology companies will report earnings starting next Tuesday, when Alphabet Inc. releases.
google
and Microsoft
MSFT
Taking center stage, followed by Apple Inc.’s results.
AAPL
,
Amazon.com
AMZN
and meta platform
meta
on Thursday.
Of the remaining two members of the “Magnificent 7”, Tesla Inc.
TSLA
reported earlier this week that its results “deeply disappointed” Wall Street, while Nvidia’s
NVDA
Results are expected at the end of February.
look: Here’s why Nvidia, Microsoft and other ‘Magnificent Seven’ stocks will return to the top in 2024
John Butters, senior earnings analyst at FactSet Research, said many of the companies in the Magnificent 7 have seen their stock prices reach record highs in recent weeks, which is driving the S&P 500’s value higher. He said that this could contribute to the rise in prices. He also said these stocks are expected to drive benchmark index returns in the fourth quarter of 2023.
In one graph: Tech stocks have largely led the stock market’s gains in January. Please be careful in February.
Collectively, Nvidia, Alphabet, Amazon.com, Apple, Meta Platforms, and Microsoft are expected to report 53.7% year-over-year revenue growth in the fourth quarter of last year, but excluding these six companies, overall revenue declined. To do. For the remaining 494 companies in the S&P 500, that percentage will be 10.5%, Butters wrote in a client note Friday.
“Overall, this translates into a 1.4% decline in headline earnings across the S&P 500 in the fourth quarter of 2023,” he said.
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