Investors in the week ahead will focus on how much inflation and the slowing economy have chiseled away at corporate profits, as companies including Goldman Sachs , Netflix and Procter & Gamble report earnings. Stocks were higher in the past week, with the market getting a boost from early new year buying. By Friday, the mood had soured after earnings reports from major banks. JPMorgan Chase , which beat estimates, said it was setting aside more funds to cover credit losses because its base case is now that the U.S. economy will enter a “mild recession.” A diverse group of companies report in the four days following the Martin Luther King Jr. Day holiday on Monday. They include J.B. Hunt Transport, United Airlines , Morgan Stanley, Alcoa and SLB. “This is going to be the start of the clock ticking on an earnings recession,” said Amanda Agati, chief investment officer of PNC Asset Management Group. Earnings are expected to be down 2.2% for S & P 500 companies in the fourth quarter, but they would be down 6.6% if energy were excluded, according to Refinitiv. The last earnings decline occurred during the deep pandemic-induced slump in 2020. .SPX 1Y line s and p “Revisions were pretty negative coming into earnings season, so the bar is pretty low,” Agati said. Even if earnings beat estimates, she still expects a negative quarter. Agati said that for the second quarter in a row, energy services and trading and distribution companies have the largest positive revisions. The sector includes Grainger, United Rentals and Fastenal, which reports Thursday. Upward revisions could be a a sign supply chains are getting back to normal, she added. Analysts expect there could be a couple of negative quarters, depending on how deep a recession the economy enters. PNC expects a recession to begin in the second quarter and to end in the fourth quarter. Economic recession talk heats up “There’s never been a recession without an earnings recession since World War II,” Agati said. Art Hogan, chief market strategist at B. Riley Financial, said this coming earnings week could be an important step toward assessing the health of corporate balance sheets. “Is the consensus estimate for the S & P 500 overstated, or at about the right place?” he said. “If that stays intact … there would be a reason to have a tail wind for this market other than a pause from the Fed.” Agati expects more CEOs to discuss recession this quarter. “I would expect that message to ring pretty loudly across the S & P 500 universe,” she said. “I think the market is a little bit delusional. There is a real disconnect where the rubber meets the road between the market and the underlying fundamentals.” Strategists expect the Federal Reserve to pause its rate hikes in the spring, but traders in the futures market are betting policymakers will then quickly move to cut interest rates by year-end. The Fed forecast does not show rate cuts until 2024. “I think the market is positioning for the Fed already pausing, and we don’t know for sure whether that’s going to be the case,” said Agati. The central bank has vowed to crush inflation, and is expected by economists to raise rates as much as a half percentage point on Feb. 1 while the market expects just a quarter point hike. The consumer price index declined slightly in December, though inflation is still running at a high 6.5% annual rate. Focus on Fed speakers Comments from Fed officials could be key in the week ahead, since after Friday, they will be in a blackout period ahead of the Jan. 31-Feb. 1 meeting. A number of officials have scheduled appearances including Fed Vice Chair Lael Brainard, who will speak on the economy at University of Chicago Booth School of Business on Thursday at 1:15 p.m. ET. Fed Governor Christopher Waller will be interviewed by CNBC’s Steve Liesman Friday at 1 p.m. ET at the Council on Foreign Relations There also is some economic data of note on the calendar. Retail sales and the producer price index are released Wednesday, as is the Fed’s beige book. There are housing starts Thursday and existing home sales Friday. The Empire State manufacturing survey is released Tuesday and the Philadelphia Fed manufacturing survey is out on Thursday. Agati said the retail sales report for December will be an important gauge on holiday shopping and consumer strength more generally. “The consumer has been under tremendous pressure, but has held in a lot longer than we expected,” she said. “The consumer is still in better shape, relative to this point in past cycles. The consumer is hanging in there so far but could only hang on so much longer. Our expectation is that retail sales should still be good for now. But I think that is going to start to roll over.” Week ahead calendar Monday Martin Luther King Jr. Day Markets closed Tuesday Earnings: Goldman Sachs , Morgan Stanley , Citizens Financial, United Airlines, Interactive Brokers 8:30 a.m. Empire state manufacturing [January] 3:00 p.m. New York Fed President John Williams Wednesday Earnings: PNC Financial, Charles Schwab, Prologis, Alcoa, Discover Financial, J.B. Hunt Transport 8:30 a.m. Retail sales [December] 8:30 a.m. PPI [December] 8:30 a.m. Business leaders survey [January] 9:00 a.m. Atlanta Fed President Raphael Bostic 9:15 a.m. Industrial production [December] 9:30 a.m. St. Louis Fed President James Bullard 10:00 a.m. Business inventories [November] 10:00 a.m. NAHB survey [January] 1:00 p.m. Kansas City Fed President Esther George 2:00 p.m. Beige book 3:15 p.m. Philadelphia Fed President Patrick Harker 4:00 p.m. TIC data [November] 5:00 p.m. Dallas Fed President Lorie Logan Thursday Earnings: Netflix, Procter & Gamble, Truist Financial, Key Corp, PPG Industries, Northern Trust, Comerica, Fastenal, Fifth Third 8:30 a.m. Initial jobless claims 8:30 a.m. Housing starts [December] 8:30 a.m. Philadelphia Fed manufacturing [January] 9:00 a.m. Boston Fed President Susan Collins 1:15 p.m. Fed Vice Chair Lael Brainard 6:35 p.m. New York Fed’s Williams Friday Earnings: SLB, Ally Financial, Huntington Bancshares, State Street , Regions Financial , LM Ericsson 9:00 a.m. Philadelphia Fed’s Harker 10:00 a.m. Existing home sales [December] 1:00 p.m. Fed Governor Christopher Waller at CFR
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