Stock market investors may take their cues from a series of important events next week, including the Federal Reserve's monetary policy meeting, a closely watched December employment report, and an earnings onslaught from giant tech names, all of which promise to take a look… Insightful on the state of the economy and interest rate expectations.
The S&P 500 SPX closed Thursday at a record high for five straight trading days, the longest such streak since November 2021. The index closed slightly lower on Friday, but posted a weekly gain of 1.1%, while the Nasdaq Composite advanced. 1%, and the Dow Jones Industrial Average rose 0.7% during the week, according to Dow Jones Market Data.
“What we’re seeing is market participants are still playing catch-up from 2023, putting money on the sidelines to work,” said Robert Chen, chief investment officer at Blank Chain Wealth Management.
“Wall Street is still trying to lock in gains as quickly as possible, so it's very short-term oriented until we see big market-moving events,” he said, adding that one event could be “disappointing.” Fed speech.
The Fed's Powell has good reasons to hold back on interest rate cuts
Expectations that the Federal Reserve will begin easing monetary policy as early as March after its fastest tightening cycle in four decades helped fuel a rally in US stock and bond markets. Investors now mostly expect rate cuts of five or six quarter points by December, bringing the federal funds rate down to about 4-4.25% from the current range of 5.25-5.5%, according to the CME FedWatch tool.
be seen: Economic growth underscored by GDP in the fourth quarter reinforces the Fed's cautious approach to interest rate cuts
While no interest rate change is expected at the central bank's first monetary policy meeting this year, some market analysts believe Fed Chair Jerome Powell's comments during his press conference on Wednesday are likely to change market expectations and conflict with expectations for a cut in March. . .
Terry Weissman, global FX and interest rates strategist at Macquarie, said a rising stock market, “very dovish” signals from the Fed's December meeting, a still-resilient labor market, and escalating conflicts in the Middle East, may indicate that… Powell maintain monetary policy. “[monetary] Tightening bias” next week.
Weissman told MarketWatch in a phone interview on Friday that the stock market rally could “backfire” thanks to easing financial conditions, while the labor market has not weakened to the extent Fed officials had hoped.
What makes matters more complicated, he added, is that fears that inflation could rise again in light of the conflict in the Middle East and the Red Sea may reinforce the Fed's cautious approach to lowering interest rates.
be seen: Oil traders don't panic about shipping attacks in the Middle East. this is the reason.
Meanwhile, Weizman said that shifting to a “neutral bias” does not automatically mean the Fed will cut interest rates soon because the Fed still needs to go to a “neutral bias” before actually cutting interest rates. “I think the market has become too pessimistic and doesn't realize that the Fed has very good reasons to push this [the first rate cut] Until June.”
Markets are “heavily focused” on the January employment report
Labor market data could also impact US financial markets next week, acting as a “big swing factor” for the economy, said Patrick Ryan, head of multi-asset solutions at Madison Investments.
Investors are looking for clear signs of a slowing labor market that could prompt the central bank to start cutting interest rates as early as March. This bet may be tested on Friday with the release of January non-farm payrolls data.
Economists polled by The Wall Street Journal estimate that U.S. employers added 180,000 jobs in January, down from a surprisingly strong 216,000 jobs in the final month of 2023. The unemployment rate is expected to rise to 3.8% from 3.7% the previous month, Which maintains the stability of the economy. Near its lowest level in half a century. Wage gains are expected to ease slightly to 0.3% in January after a strong 0.4% increase in December.
“This is going to get everyone laser-focused,” Ryan told MarketWatch by phone on Thursday. “Anything that shows you real weakness in the labor market will question whether the stock market is prepared to trade at more than 20 times (earnings) this year.” The S&P 500 is trading at 20.2 times earnings as of Friday afternoon, according to FactSet data.
Six of the “Magnificent 7” may continue to push S&P 500 earnings higher
Next week will also be filled with earnings for some of the big tech names that have fueled the stock market's rise since last year.
Five so-called Magnificent 7 technology companies will report earnings starting next Tuesday when Alphabet Inc. GOOG,
Microsoft Corporation (MSFT),
takes the lead, followed by Apple Inc.'s results. AAPL,
Amazon.com Amzn,
and META meta platforms,
Thursday.
The two remaining members of the “Magnificent 7” include Tesla Inc. TSLA,
Earlier this week, it reported “hugely disappointing” results on Wall Street, while Nvidia Corp.'s NVDA.
The results will be out at the end of February.
be seen: Here's why Nvidia, Microsoft and other 'Magnificent Seven' stocks will return to the top in 2024
A number of companies in the “Magnificent 7” have seen their stock prices rise to record levels in recent weeks, which could help push the value of the S&P 500 higher, said John Butters, senior earnings analyst at FactSet Research. He also said that these stocks are expected to drive the benchmark index's earnings higher in the fourth quarter of 2023.
In one chart: Technology leads January's stock market rally by a wide margin. Beware of February.
In total, Nvidia, Alphabet, Amazon.com, Apple, Meta Platforms, and Microsoft are expected to report year-over-year earnings growth of 53.7% for the fourth quarter of last year, while excluding these six companies, blended earnings are down. For the remaining 494 companies in the S&P 500 it will be 10.5%, Butters wrote in a client note on Friday.
“Overall, the blended earnings decline for the entire S&P 500 for the fourth quarter of 2023 was 1.4%,” he said.
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