Wall Street will face one of its busiest weeks of the year in the coming week, with earnings from Big Tech leaders, the Federal Reserve’s first meeting and rate decision of 2023, and the monthly jobs report for January all set for release.
The S&P 500’s most heavily-weighted components — Alphabet (GOOGL), Apple (AAPL), and Amazon (AMZN), as well as Facebook parent company Meta (FB) — are among important players scheduled to report fourth-quarter financial results through Friday.
Meanwhile, in Washington, D.C., Fed officials will meet Jan. 31-Feb 1 and are expected to raise interest rates by 0.25% in Wednesday’s policy decision. A press conference held by Fed Chair Jerome Powell Wednesday afternoon will offer investors crucial signs regarding the central bank’s path forward on rate increases.
Finally, rounding out the week on Friday morning will be the government’s January jobs report, set for release at 8:30 a.m. ET. Economists expect 185,000 jobs were added to the economy last month, consensus estimates from Bloomberg show.
Stocks have been on a tear to start 2023, as many investors bet weakening economic data will prompt the Federal Reserve to end its rate hiking cycle sooner than expected. All three major averages closed out their fourth-straight winning week on Friday.
The S&P 500 notched a weekly gain of around 2.5%, the Dow Jones Industrial rose 1.8%, and the technology-heavy Nasdaq Composite led the way with a rally north of 4%.
The 2023 rally will face its biggest test yet this week as mega-cap technology companies report earnings at a critical juncture for their businesses.
These results come as technology layoffs ramp up after hiring swelled during the post-pandemic boom. Last week, Alphabet announced plans to cut 12,000 jobs, while layoffs at Amazon and Meta Platforms also stand in the tens of thousands as growth comes back down to earth after surging in 2021.
On Wednesday, members of the Federal Open Market Committee (FOMC) are poised to lift rates by 25 basis points, marking another slowdown from the 0.50% rate increase the Fed announced in December, which itself was a step down from the 0.75% pace of rate hikes seen during the prior four meetings.
The FOMC will announce its decision at 2:00 p.m. ET, with Fed Chair Jerome Powell scheduled to hold a press conference beginning at 2:30 p.m. ET. The CME FedWatch Tool, which serves as a barometer for what investors believe the central bank’s next move will be, shows markets are pricing in a 99.8% chance of a 25 basis point hike on Wednesday.
“As the FOMC gathers for the first time in 2023, it will face a difficult challenge: how to communicate a desire to maintain a sufficiently restrictive monetary policy stance while avoiding the risk of overtightening,” EY Parthenon chief economist Gregory Daco said in a note. “And, with its dance partner – i.e. markets – desiring a much slower dance tempo, carefully crafted communication will be essential to avoid a tumble.”
Elsewhere on the economic data front, the January jobs report comes out on Friday. The employment picture has moderated in recent months, but demand for workers remains high, with the labor market breezing through the Fed’s monetary tightening campaign.
December’s data showed the labor market added a robust 223,000 jobs during the month, and a monthly average of 375,00 during all of last year — even as 425 basis points worth of rate hikes permeated through the economy.
Strategists who have doubted market expectations for the Fed to pause rate hikes point to continued labor market tightness, as wage pressures still pose a risk to inflation, even as consumer price increases continue to slow from multi-decade highs reached in the summer of 2022.
“We need activity weakness to translate to job losses to address Powell’s preferred services ex-shelter inflation metric, where wages are the primary driver,” Alexandra Wilson-Elizondo, head of Multi-Asset Retail Investing at Goldman Sachs Asset Management, said in a recent note to clients. “We continue to think that we should not fight the Fed because they will demonstrate a slow reaction function on inflationary risk management.”
Overall, fourth quarter earnings season continues to be a modest disappointment, though the market’s performance this year shows investors are largely not surprised.
Of the 29% of S&P 500 companies that have reported results to date, just 69% have seen earnings per share come in above estimates, below the 5-year average of 77% and 10-year average of 73%, per data from FactSet.
For Amazon, key headwinds investors will be looking for color on include softening consumer discretionary spending and decelerating growth for its cloud business, AWS, according to Arun Sundaram, senior equity analyst at CFRA Research.
“Matters on cost cutting and belt-tightening initiatives will be front and center, as CEO Andy Jassy recently confirmed plans to eliminate just over 18,000 roles, which we forecast could result in more than $3 billion in savings,” Sundaram said in a note.
For Apple, momentum on iPhone demand will be one of the biggest factors monitored by investors, while markets will be looking for any clues Alphabet offers on the state of the advertising business, given its exposure to this market through its Search and YouTube segments.
Other big names set to report include Advanced Micro Devices (AMD), Caterpillar (CAT), Qualcomm (QCOM), and Ford (F).
Though with a roster of companies reporting results this deep, big splashes and surprising releases are no doubt going to be a part of the coming week’s market narrative.
Outside of Friday’s jobs report, the typical mix of month-end economic data will also feature, with manufacturing readouts from the Institute for Supply Management and S&P Global set for Wednesday, as well as Tuesday’s reading on consumer confidence from The Conference Board, all set to be closely watched.
On the labor side, Wednesday’s private payrolls data from ADP and Thursday’s weekly report on initial jobless claims will set the table for Friday’s nonfarm payrolls report.
Source: Yahoo
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