Week of January 22, 2024

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The stock market's new record high will be challenged next week by a series of corporate earnings reports and a new reading on the Federal Reserve's preferred measure of inflation.

With most financial institutions finishing reporting, technology results will take center stage with Netflix (NFLX) earnings on Tuesday followed by Tesla (TSLA) earnings on Wednesday. Reports from Johnson & Johnson (JNJ), United Airlines (UAL), Verizon (VZ), and AT&T (ATT) also highlight one of the busiest weeks of quarterly reporting on Wall Street.

In economic data, the first reading of economic growth for the fourth quarter is expected to be released on Thursday. Meanwhile, the latest release of the Personal Consumption Expenditure (PCE) Index, the Fed's preferred measure of inflation, is scheduled for release on Friday.

All of this will come with stocks trading at or near their highest levels on record. The S&P 500 (^GSPC) closed Friday at 4,839, a new record high for the benchmark average. The Dow Jones Industrial Average (^DJI) also reached a new closing high of 37,863. Meanwhile, technology was the biggest winner on Friday as the Nasdaq Composite (^IXIC) rose 1.7%. All three major averages are now in positive territory for January.

Stocks' surge to new highs on Friday came as consumer confidence data from the University of Michigan showed consumers feeling their best about the economy since July 2021.

Positive sentiment from consumers matches increasingly optimistic forecasts from Wall Street economists as data continued to surprisingly rise in January.

Last week, an examination of December retail sales showed that consumers ended 2023 in better shape than many economists had feared. While headlines about layoffs across sectors have spiked in recent weeks, the actual data measure of unemployment claims recently reached its lowest weekly level since September 2022.

The story continues

Flexible data has analysts Projection The US economy grew at a 2% annual rate in the fourth quarter ahead of the initial release of GDP forecasts on Thursday.

The Oxford Economics team is growing more confident that the economic expansion will not stop next year either.

“The odds of a recession have declined over the past few months due to a strong labor market, slower inflation, and looser financial conditions on the back of the Fed's impending pivot to rate cuts,” Matthew Martin and Ryan Sweet of Oxford Economics said. he wrote in a note to clients on Friday.

“[Oxford’s] The baseline forecast for January included an upward revision in GDP growth this year, a lower peak in the unemployment rate, and stronger consumer spending. Our odds of a recession this year are now less than 50%.”

Aside from economic growth, the hottest debate on Wall Street remains when the Fed intends to cut interest rates.

As of Friday afternoon, investors are placing a 49% chance on a rate cut in March. According to the Federal Reserve's CME monitoring tool. Just a week ago, investors had placed an 81% chance of a cut in March.

Many economists believe that inflation's downward path will be the main driver when the Fed initiates its first rate cut. Goldman Sachs chief economist Jan Hatzius believes the first cut will come in March.

“The driver behind the interest rate cuts in our forecast, and I would say in what Chairman Powell said in the press conference in December, is that inflation is getting back on target,” Hatzius told Yahoo Finance Live. “If inflation returns to target, it is very likely that there will also be interest rate cuts because the federal funds rate of 5.37% will look very, very high compared to an economy producing 2% inflation.”

The inflation story will be updated on Friday with the release of the Personal Consumption Expenditure Index for December.

Economists expect 'underlying' annual growth in personal consumption expenditures – which excludes the volatile categories of food and energy Recording 3% in December. Over the previous month, most economists expect the “core” PCE rate to reach 0.2%.

“The Fed’s confidence that inflation is returning to 2% should increase on the back of this report,” Michael Gapen, a US economist at Bank of America, who also expects the first cut to come in March, wrote in a note to clients on Friday.

With the Federal Reserve in a blackout period ahead of its next meeting on January 30, earnings are expected to be a major driver of stock market sentiment next week.

For Netflix, the focus will remain on how demand for its new ad tier and password-sharing campaign will impact its future growth prospects. At Tesla, margins remain the main focus while investors are also listening closely to any comment from CEO Elon Musk, who is said to be seeking more control of the company.

Overall, given the huge average exposure to large companies, how tech earnings perform can indicate which direction the market is headed in the short term.

“the art show “Earnings and the ability to grow earnings at a good pace, even if we have a decline in growth, is very important to keep this market moving forward,” Lerner told Yahoo Finance on Wednesday ahead of the technology earnings. Keith Lerner told Yahoo Finance.

John Butters, senior earnings analyst at FactSet, highlighted on Friday that fourth-quarter earnings are currently off to a “weak start.” With 10% of S&P 500 companies having finished reporting, the index is currently on track for an EPS decline of 1.7%.

But as Butters points out, this is largely because the focus during the first two weeks of earnings has been on financials. In the coming weeks, the narrative will shift to technology and communications services, where profits are expected to grow compared to the same quarter last year.

Weekly calendar

Monday

• Economic data: Leading Index, December (-0.3%, expected, -0.5% previously)

• Profits: United Airlines (UAL), Logitech (LOGI), Zions Bancorporation (ZION)

Tuesday

• Economic data: Richmond Manufacturing Index, January (-6 expected, -11 previous)

• Profits: 3M (MMM), Halliburton (HAL), Johnson & Johnson (JNJ), Lockheed Martin (LMT), Netflix (NFLX), Texas Instruments (TXN), Verizon (VZ),

Wednesday

• Economic data: MBA Mortgage Applications, week ending January 19 (previously +10.4%); S&P Global US Manufacturing PMI, preliminary January reading (expected 47.6, previous 47.9); S&P Global US Services PMI for January (expected 51, previous 51.4); January S&P Global US Services Composite PMI (previously 50.9)

• Profits: AT&T (ATT), Abbott (ABT), Freeport-McMoRan Copper and Gold (FCX), IBM (IBM), Las Vegas Sands (LVS), SAP (SAP), Tesla (TSLA)

Thursday

• Economic data: Initial jobless claims, week ended (200,000 expected, 187,000 previously); Unemployment claims continue, week ending January 13 (1.84 million expected, 1.81 million previously); Q4 GDP, first estimate (+2.0% annual rate expected, +4.9% previously); Q4 personal consumption, first estimate (+2.2% y/y expected; +3.1% previously); Core PCE index for Q4 (2.0% y/y expected, 2.0% previously); Wholesale inventories for December (expected -0.2%, previously -0.2%); Durable Goods Orders, December preliminary reading (1.5% expected, 5.4% previously); New Home Sales, December (647,000 expected, 590,000 previously)

• Profits: American Airlines (AAL), Alaska Airlines (ALK), Capital One (COP), Comcast (CMCSA), Dow (DOW), Humana (HUM), Intel (INTC), Levi's (LEVI), Southwest (LUV), T-Mobile (TMUS), Union Pacific (UNP), Valero (VLO), Visa (V)

Friday

• Economic news: Personal Income, Monthly, December (+0.3% expected, +0.4% previously); Personal Spending, Monthly, December (+0.4% expected, +0.2% previously); PCE Inflation, MoM, December (+0.2% expected, -0.1% previously); PCE Inflation, YoY, December (+2.6% expected, +2.6% previously); “Core” PCE, MoM, December (+0.2% expected, +0..1% previously); “Core” PCE, YoY, December (+3.0% expected; +3.2% previously);

• Profits: American Express (AXP), Colgate-Palmolive (CL)

Josh Shafer He is a correspondent for Yahoo Finance.

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