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Corporate earnings season is starting to resume on Wall Street.
Investors will receive important information on inflation and reports from some of the country’s largest financial institutions over the next week.
Thursday morning will feature December’s Consumer Price Index (CPI), and Friday will feature December’s Producer Price Index (PPI).
This week marks the start of Q4 earnings season with heavy bank earnings from JPMorgan (JPM), Wells Fargo (WFC), Bank of America (BAC), BlackRock (BLK), and Citi (C). It ends.
The stock enters the fourth quarter reporting period in cooldown mode. The S&P 500 had a negative week heading into 2024 after his nine consecutive weeks of gains. Over the past five trading sessions, the tech-heavy Nasdaq (^IXIC) has fallen nearly 4%. The benchmark S&P 500 Index (^GSPC) fell about 2%, and the Dow Jones Industrial Average (^DJI) fell nearly 1%.
The unexpected December jobs report showed the U.S. labor market ended 2023 on mostly solid footing. The labor market added 216,000 jobs in December, an increase of about 40,000 from the previous month and above Wall Street’s expectations for the latest report. The unemployment rate remains stable at 3.7%, a historically low level.
The average hourly wage, which is attracting attention as an indicator of inflation and an indicator of the influence of workers in the labor market, increased by 0.4% from the previous month and by 4.1% from the previous year. Economists had expected wages to rise 0.3% from last month and 3.9% from a year ago.
“The strong wage data suggests the Fed will continue to hold policy for some time to come,” Thomas Simmons, an economist at Jefferies US, wrote in a note to clients on Friday. ”[Average hourly earnings are] That’s much faster than inflation over the past few months. The Fed is pleased with the progress it has made in bringing inflation back to 2%, but inflation remains strong. [average hourly earnings] Solving the “last mile” problem will become even more difficult. ”
As Simons nodded, the debate about when the Federal Reserve will cut interest rates continues to rage. Goldman Sachs still expects the first rate cut to occur in March.
“We continue to expect three consecutive 25 basis point cuts in the federal funds rate in March, May and June on the back of lower core inflation,” Goldman’s economics team led by Jan Hadzius said on Friday. said.
For now, the market price is on Goldman’s side, but the odds are changing. As of Friday afternoon, the market was pegging the probability of a March rate cut at about 66%. A week ago, investors had a nearly 88% chance of a rate cut, according to the CME FedWatch tool.
Much of the debate over when the Fed will cut rates has centered on how confident the central bank is that inflation is actually heading down toward the Fed’s 2% target.
Further details will be published in next week’s December CPI print issue.
Wall Street economists expect headline inflation to rise at an annual rate of 3.2% in December, up slightly from November’s 3.1%. Prices are expected to rise 0.2% month-on-month, also slightly up from November’s 0.1% rise.
The “core” CPI, which excludes food and energy prices, is expected to rise 3.8% year-on-year in December, slowing from a 4.0% rise in November. Monthly core price growth is expected to be 0.3%.
“Overall, we look forward to next week’s CPI report indicating that inflation continues to slow, with the FOMC on track to begin cutting rates in June,” Wells Fargo’s economics team said in a research note Friday. “There is,” he said. “Energy prices have stabilized since last month and are unlikely to repeat the deep declines that occurred in October and November. Against this backdrop, we expect disinflation in core goods to continue.
On the corporate front, the fourth quarter earnings season begins with strong results. Delta Air Lines (DAL), JPMorgan, Citi, Wells Fargo, Bank of America and BlackRock are all scheduled to report Friday morning.
Investors will be watching for updates on consumer spending and how financials are holding up in a rising interest rate environment. The prospect of the Fed cutting interest rates in 2024 could boost bank stocks, said Mike Mayo, a financial analyst at Wells Fargo.
“You can see bank stocks starting to outperform with the Fed’s policy change in December,” Mayo said on Yahoo Finance Live. “But when you actually look at it, [the Fed rate cuts] If that happens, I think banks’ performance will further improve. And I think the downside risk will be reduced. ”
The financial sector will report for the first time on company results for the fourth quarter. Wall Street is generally more pessimistic about fourth-quarter earnings. Since Sept. 30, S&P 500 earnings estimates have declined 6.8%, according to FactSet. This is the largest decline since the third quarter of 2022 and significantly exceeds the 20-year average decline of 3.8%.
Binky Chadha, chief U.S. equity strategist at Deutsche Bank, expects earnings to be stronger this quarter. But Chadha says even that may not boost the market in the short term. He points out that the stock price is in a precarious position due to the large stock price rally at the end of the year.
“The magnitude of stock price gains during earnings season has historically been highly correlated to market performance and stock positioning,” Chadha said in a note to clients. “Despite expectations for solid growth and a strong beat this season, market gains are muted by solid gains in the S&P 500 since the end of the previous earnings season and (though not extreme) gains in equity positioning. There is a high possibility that it will happen.”
weekly calendar
Monday
economic data: No notable economic announcements
revenue: Jeffries (JEF)
Tuesday
economic data: NFIB Small Business Optimism, December (estimated 90.6, previous 90.6)
revenue:WD-40 (WDFC), Tilray (TLRY)
Wednesday
economic data: Wholesale inventory month-on-month change, November (forecast -0.2%, previous -0.2%)
revenue:KB Home (KBH)
Thursday
economic data: Number of new unemployment insurance claims for the week ending January 6th (estimated 211,000, previously 202,000). Consumer price index for December, month-on-month (forecast +0.2%, previous +0.1%). CPI excluding food and energy, month-on-month, December (forecast +0.3%, previous +0.3%). Consumer price index, year-on-year change, December (expected +3.2%, previous +3.1%). CPI excluding food and energy, compared to the same month last year, December (forecast +3.8%, previous +4%). Real average hourly wage in December compared to the previous year (previous increase of 0.8%). Real average weekly earnings, year-over-year, December (previously up 0.5%)
revenue：No noticeable profit
Friday
economic data: Producer price index, month-on-month change, December (expected +0.2%, previous 0%). December PPI, year-on-year change (forecast +1.3%, previous +0.9%). Core PPI, m/m, December (expected to be up 0.2%, previously 0%). Core PPI, YoY, December (expected +2%, previous +2%)
revenue:Delta Airlines (DAL), JP Morgan (JPM), Citigroup (C), BlackRock (BLK), Bank of America (BAC), BNY Mellon (BK), Wells Fargo (WFC), UnitedHealth ( UNH）
Josh Schafer is a reporter for Yahoo Finance.
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