Several events with market-moving potential will test markets this week.
Last week, U.S. stocks had their first down week this year as the deadly coronavirus sent shockwaves rippling through global markets. Investors will continue to monitor the latest coronavirus developments, but focus will shift this week to a deluge of corporate earnings, the Federal Open Market Committee’s (FOMC) rate decision and economic data.
More than 40% of the S&P 500’s market cap is set to report quarterly results this week. Apple, Starbucks, Boeing, Tesla, Microsoft, Facebook, General Electric, Amazon, Coca-Cola, McDonald’s, Caterpillar, Exxon Mobil and Chevron are among some of the heavyweights expected to report.
“The reaction to earnings has been fairly muted so far, and earnings ‘surprises’ have been in line with Q1-Q3,” Raymond James Chief Investment Officer Larry Adam wrote in his Jan. 24 edition of Weekly Headings. “If this trend continues, Q4 earnings growth should finish closer to 2% (vs -1.5% currently). Q4 earnings season really picks up steam over the next week, and we are interested to hear from certain sectors and stocks. For example, Technology has seen 23% P/E expansion since the end of September; and while earnings estimate revisions have been very stable, it will be important for these companies to meet (or exceed) expectations in order to sustain their price momentum.”
Meanwhile, the Federal Reserve gathers in Tuesday to kick off its first two-day meeting of the year. At the conclusion of the meeting, Fed Chairman Jerome Powell will hold a press conference. Consensus expectations are for the Fed to hold the federal funds target range steady between 1.50% to 1.75% following this month’s meeting.
“Fed officials largely agreed that the policy rate is likely to remain on hold for the near future. Chair Powell stated that a ‘persistent’ and ‘significant move-up’ in inflation would be required to raise rates. Other officials indicated a material change to the outlook would likely be necessary to move rates in either direction.” Goldman Sachs economist Jan Hatzius wrote in a note Jan. 22.
The Fed’s balance sheet will also take centerstage in both deliberations and during Powell’s press conference, according to Morgan Stanley. “Clearer communication is need to allay concerns among investors that an end to building reserves will pull the rug out from under risk assets. The Fed aims to enter the spring with ample reserves and does not see its purchases of T-bills as a key factor in driving risk assets higher,” Morgan Stanley economist Ellen Zentner wrote in a note Jan. 24.
Finally, investors will get the first look at the U.S. fourth-quarter gross domestic product (GDP). Economists surveyed by Bloomberg expect the U.S. economy to have grown 2.2% during the quarter, up from 2.1% growth in the third quarter.
“A slowdown in consumption and government spending should be offset by a small pickup in business and residential investment. Trade and inventories will continue to be volatile with a large contribution from net exports partially offset by a drag from inventories,” Credit Suisse economists explain in a note Jan. 23. “Consumer spending should slow to a moderate pace of 1.9% after growing solidly by 3.1% in Q3. Labor income has slowed amid sideways consumer sentiment, suggesting a trend slowdown in consumption is likely.”
Looking forward to the first quarter, Credit Suisse expects even slower growth. “We expect headline GDP growth to slow to 1.6% QoQ annualized in Q1, continuing the moderation seen in recent quarters with some added weakness from the Boeing production shutdown. We forecast Q4/Q4 real GDP growth of 1.9% in 2020, a step back from an estimated growth of 2.3% in 2019.”
Tuesday: 3M (MMM), Harley-Davidson (HOG), Lockheed Martin (LMT), Pfizer (PFE), PulteGroup (PHM), United Technologies (UTX) before market open; AMD (AMD), Apple (AAPL), eBay (EBAY), Starbucks (SBUX), Xilinx (XLNX) after market close
Wednesday: Anthem (ANTM), AT&T (T), Boeing (BA), Dow (DOW), Mastercard (MA), McDonald’s (MCD) before market open; Facebook (FB), Microsoft (MSFT), Mondelez (MDLZ), PayPal (PYPL), Tesla (TSLA) after market close
Thursday: Biogen (BIIB), Coca-Cola (KO), Eli Lilly (LLY), General Electric (GE), Hersey (HSY), Raytheon (RTN), UPS (UPS), Valero (VLO), Verizon (VZ) before market open; Amazon (AMZN), Electronic Arts (EA), Western Digital (WDC), Visa (V), Vertex (VRTX), U.S. Steel (X) after market close
Monday: New Home Sales, December (731,000 expected, 719,000 in November); Dallas Fed Manufacturing Activity, January (-1.6 expected, -3.2 in December)
Tuesday: Durable Goods Orders, December preliminary (0.9% expected, -2.1% prior); Durable Goods excluding Transportation, December preliminary (0.3% expected, -0.1% prior); Conference Board Consumer Confidence, January (128.0 expected, 126.5 in December); Richmond Fed Manufacturing Index, January (-3 expected, -5 in December)
Wednesday: MBA Mortgage Applications, week ended Jan. 24 (-1.2% prior); Wholesale Inventories month-on-month, December preliminary (-0.1% prior0; Pending Home Sales month-on-month, December (0.7% expected, 1.2% in November)
Thursday: GDP quarter-on-quarter, Q4 (2.2% expected, 2.1% in Q3); Personal Consumption, Q4 (2.2% expected, 3.2% in Q3); GDP Price Index, Q4 (1.8% expected, 1.8% in Q3); Core PCE quarter-on-quarter, Q4 (1.6% expected, 2.1% in Q3); Initial Jobless Claims, week ended Jan. 25 (214,000 expected, 211,000 prior); Continuing Claims, week ended Jan. 18 (1.731 million prior); Bloomberg Consumer Comfort, week ended Jan. 26 (66.0 prior)
Friday: Employment Cost Index, Q4 (0.1% expected, 0.1% prior); Personal Income, December (0.3% expected, 0.5% in November); Personal Spending, December (0.3% expected, 0.4% in November); MNI Chicago PMI, January (48.9 expected, 48.2 in December); University of Michigan Sentiment, January final (99.1 expected, 99.1 prior)
Heidi Chung is a reporter at Yahoo Finance. Follow her on Twitter: @heidi_chung.
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