4 most important things we’re watching in the stock market this week

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The major averages were all up for the holiday shortened trading week, with the S&P 500 closing at a new all-time high on Friday, beating its last record set in January 2022.

The week’s biggest winner, however, was the tech-heavy Nasdaq, which gained more than 2%. The Magnificent Seven (Amazon, Alphabet, Apple, Meta Platforms, Microsoft, Nvidia, Tesla) led the way, with Nvidia jumping 8.74% for the week, and Apple up 3.03% following a big upgrade by Bank of America.

After two consecutive winning weeks, all three averages are in now in the black for 2024.

Within the portfolio, we heard from Morgan Stanley, which despite producing better-than-expected results came under pressure as management struck a cautious tone. The bank’s wealth management business is not quite matching buy side expectations, even as it beat the sell side consensus estimate.

On the macroeconomic front, a hotter-than-expected retail sales number on Wednesday put pressure on stocks as investors were forced to reconsider estimates on how many rate cuts the Federal Reserve might do this year. 

We are at a weird moment in terms of the data. On the one hand, we don’t want to see numbers so strong that it takes the need for rate cuts off the table. On the other, strong data speaks to economic resiliency, which is in turn a great backdrop for business operations. As a result, the investors are looking for data that is strong enough to support sales and earnings growth while keeping unemployment low (good for business fundamentals). But also we want data that shows continued disinflation that allows the Fed room to cut rates (a positive for equity valuations). Fortunately, we’ll get useful information in the coming weeks as earnings season ramps up and updated inflation data is released.

Housing inflation is proving a tougher nut to crack. This week, we learned that though housing starts and building permits were stronger than expected, single-family housing starts were down 8.6% monthly in December. This isn’t great. We really want to see more supply come into the market to provide some relief on shelter costs. Existing home sales came in lower than expected, falling 1% monthly and 6.2% versus the year-ago period to the lowest level since 1995. The combination of a lack of supply and high rates is causing many to simply stay in their homes. Again, this isn’t ideal as it supports higher home prices — great if you own, not so good if you’re looking to buy.

Also not great if you are the Fed trying to break inflation’s back, since shelter costs represent a major source of higher prices.

Looking to next week, we’ll get a several key economic updates and a ramp up of earnings releases. Within the portfolio we’ll hear from Procter & Gamble on Tuesday before the opening bell. 

1. Personal spending. The big macroeconomic watch item is December personal spending and income report on Friday. With the market still trading largely on interest-rate expectations and much debate around future cuts, this report is key as it contains the important core PCE price index, the Fed’s preferred measure of inflation. As of Friday, the expectation (per FactSet) is for a 2.9% annual advance, which would represent a nice deceleration from the 3.2% rate in November and represent the first time we’ve had a 2 handle for the core index since March 2021. We’re ultimately aiming for the Fed’s target rate of 2%, so the closer that core number gets, the less pressure to hold rates higher for longer. Of course, we also don’t want a reading so weak as to spark fears that we’re headed for a hard landing. We want that Goldilocks number (again).

2. Gross domestic product. Sure it’s backward looking, but the first reading of the fourth quarter 2023 GDP index on Thursday will provide some insight into how the U.S. economy is holding up at the highest level and whether the Fed funds rate is an appropriate level or a bit too tight.

3. Housing data. We’ll also get a look at the housing market with the December new home sales report out on Thursday and December pending home sales out on Friday. As has been the case, we’re looking for any indication of more supply and a reduction in list prices as shelter remains a key thorn in the Fed’s side when it comes to sticky areas of inflation.

4. Earnings: Procter & Gamble’s quarterly release on Tuesday will show how organic sales are looking as management works to take full advantage of its pricing power without causing too much of a negative impact on volumes. Possibly working to our advantage is that while the organic growth estimate at the moment is 4.4% (according to FactSet), analysts at Citigroup highlighted this week that their checks indicate that the buy side — the expectations that really matter in terms of the stock’s reaction to the print — may be more in the 3% to 4% range. In other words, expectations appear tempered and that’s always a positive heading into an earnings release. Weakness in China will also be a watch item, along with the impact of foreign exchange (both in the reported quarter and expectations for the year). Forex was a headwind in the previous quarter. The other key focus is guidance. At the last call with investors, management was forced to reduce the full-year sales outlook. They did reiterate the earnings forecast, but cautioned it may be on the lower end of the range.

Monday, January 22

  • Before the bell: Bank of Hawaii (BOH)
  • After the bell: United Airlines (UAL), Logitech International S.A. (LOGI), AGNC Investment (AGNC), Agilysys Inc (AGYS), Brown & Brown   (BRO), Zions Bancorporation (ZION), CrossFirst Bankshares (CFB), Great Southern Bancorp (GSBC), Enterprise Financial Services (EFSC), Independent Bank Group (IBTX), Home Bancorp (HBCP), RBB Bancorp (RBB), SmartFinancial (SMBK), TrustCo Bank Corp NY (TRST)

Tuesday, January 23

  • Before the bell: Procter & Gamble Co. (PG), Verizon Communications (VZ), 3M Company (MMM), General Electric Co. (GE), RTX Corporation (RTX), Johnson & Johnson (JNJ), Halliburton Company (HAL), Lockheed Martin (LMT), D.R. Horton (DHI), PACCAR (PCAR), Ericsson (ERIC), Community Bank System   (CBU), GATX Corporation (GATX), MakeMyTrip Limited (MMYT), Old National Bancorp (ONB), Synchrony Financial (SYF), Webster Financial (WBS), Atlantic Union Bankshares Corporation (AUB), Invesco PLC (IVZ), Peoples Bancorp Inc (PEBO), Sandy Spring Bancorp   (SASR)
  • After the bell: Netflix (NFLX), Intuitive Surgical (ISRG), Texas Instruments Incorporated (TXN), Steel Dynamics (STLD), Baker Hughes (BKR), Stride (LRN), Canadian National Railway Company (CNI), NBT Bancorp   (NBTB), East West Bancorp   (EWBC), Business First Bancshares (BFST), Covenant Logistics Group, Inc (CVLG), Hanmi Financial (HAFC), National Bank Holdings Corporation (NBHC), Premier Financial (PFC), QCR Holdings   (QCRH), Renasant Corporation (RNST), Triumph Financial (TFIN), Trustmark (TRMK), Veritex Holdings (VBTX), WesBanco   (WSBC)

Wednesday, January 24

  • Before the bell: AT&T (T), ASML Holding (ASML), Progressive (PGR), Abbott (ABT), Amphenol (APH), Freeport-McMoRan Copper & Gold (FCX), Elevance Health (ELV), Kimberly-Clark (KMB), SAP SE (SAP), Textron (TXT), New Oriental Education and Technology Group   (EDU), BOK Financial (BOKF), First BanCorp (FBP), First Community (FCCO), General Dynamics (GD), Monro (MNRO), OFG Bancorp (OFG), Prosperity Bancshares   (PB), Simmons First National (SFNC), TE Connectivity Ltd. (TEL), United Community Banks (UCBI), Blue Foundry Bancorp (BLFY), Capitol Federal Financial (CFFN), HBT Financial (HBT), Teledyne Technologies (TDY)
  • After the bell: Tesla (TSLA), International Business Machines (IBM), ServiceNow (NOW), Las Vegas Sands Corp (LVS), Lam Research (LRCX), United Rentals (URI), W.R. Berkley Corp (WRB), Crown Castle International (CCI), Packaging Corporation of America (PKG), Seagate Technology plc (STX), CACI International, Inc (CACI), Knight-Swift Transportation Holdings   (KNX), Ameriprise Financial Inc (AMP), Concentrix Corporation (CNXC), First Bank (FRBA), Liberty Energy   (LBRT), ResMed   (RMD), Pathward Financial (CASH), Columbia Banking System   (COLB), CSX (CSX), NovaGold Resources (NG), RLI (RLI), Ethan Allen Interiors   (ETD), Hexcel (HXL), Raymond James Financial (RJF)

Thursday, January 25

  • 8:30 a.m. ET: Durable Goods Orders
  • 8:30 a.m. ET: Gross Domestic Price Index
  • 8:30 a.m. ET: Initial jobless claims
  • 10:00 a.m. ET: New Home Sales
  • Before the bell: American Airlines Group   (AAL), NextEra Energy Inc (NEE), Alaska Air Group (ALK), Dow Chemical Co. (DOW), Valero Energy (VLO), Blackstone (BX), Southwest Airlines Co. (LUV), Nextera Energy Partners LP (NEP), Sherwin-Williams Co. (SHW), Union Pacific (UNP), Applied Industrial Technologies (AIT), Mobileye Global   (MBLY), Northrop Grumman (NOC), Comcast (CMCSA), Nokia (NOK), TAL Education Group (TAL), West Bancorporation (WTBA), Murphy Oil (MUR), McCormick & Company, Incorporated (MKC), Valley National Bancorp (VLY)
  • After the bell: Intel (INTC), Visa Inc (V), Arthur J. Gallagher & Co. (AJG), KLA Corporation (KLAC), Western Alliance Bancorporation (WAL), Capital One Financial (COF), T-Mobile US   (TMUS), Levi Strauss & Co. (LEVI), L3Harris Technologies (LHX), AppFolio (APPF), Western Digital (WDC), FICO (FICO), CVRx (CVRX), Olin Corporation (OLN)

Friday, January 26

  • 8:30 a.m. ET: Personal Spending & Income
  • 10:00 a.m. ET: Pending Home Sales
  • Before the bell: American Express Co. (AXP), Booz Allen Hamilton Holding Corporation (BAH), Autoliv   (ALV), Colgate-Palmolive Co. (CL), Norfolk Southern Corporation (NSC), First Citizens BancShares   (FCNCA), BankUnited (BKU), Badger Meter (BMI), Dime Community Bancshares (DCOM), First Hawaiian, Inc (FHB), Gentex (GNTX)

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