Earnings news will keep investors busy and markets volatile in the coming week, as the Federal Reserve’s next rate hike gets closer. A diverse group of more than 80 S & P 500 companies report including industrials, such as Boeing and transports like Union Pacific , CSX , and Southwest Air . Big tech is also starting to roll out numbers, with earnings due from IBM , Intel and Microsoft . Financials Visa and MasterCard report, as does pharma with Johnson and Johnson and Abbott Labs reporting. Tesla releases its results Wednesday. Because the Fed meets Jan. 31 and Feb. 1, there are no speeches from Federal Reserve officials on the calendar. “Earnings have been a sideshow and a page two story versus the Fed, which is a page one story and driver of the broad market,” said Leo Grohowski, BNY Mellon Wealth Management chief investment officer. “I think we are seeing a proper response to company-specific news. I do think that will happen even more in the week ahead as the Fed is in a blackout period. It’s encouraging to get to focus on company-specific fundamentals.” The calendar, however, is thick with economic data, including fourth quarter gross domestic product and durable goods Thursday. S & P Global PMI data is released for both services and manufacturing Tuesday. On Friday, there is consumer sentiment and personal consumption data, which includes the Fed’s preferred inflation measure, the PCE deflator. “It’s really just a countdown to the Fed,” said Ian Lyngen, head of U.S. rates strategy at BMO. “There’s the first look at fourth quarter GDP, but no one is expecting a recession to have started in Q4. Even an upside surprise or a downside miss won’t change the macro narrative.” The Atlanta Fed’s GDPNow tracker shows Q4 gross domestic product growing by 3.5% , and economists surveyed by Dow Jones expect growth of 2.8%. The PCE deflator is reported Friday, so markets will be focused on any hint that inflation is hotter or cooler than expected. Lyngen said the market is expecting a quarter-point rate hike from the Fed on Feb. 1, but some economists still see a better chance for a half-point increase. The futures market also projects a chance for rate cuts this year, but the Fed has not forecast any until next year. “The market continues to think the Fed does not have to administer as much medicine as the Fed tells us they plan to. I think those that fight the Fed on the way down are off sides here,” said Grohowski. “The Fed is just continuing to remind us: ‘If you’re hoping for a pivot, we’re not there.'” Grohowski said instead the central bank will continue to hike and then hold rates at a high level. “Hope springs eternal, but I honestly think we need to think about 2024 when it comes to the Fed pivoting,” he said. Earnings, earnings, earnings Stocks were mixed in the past week, with the S & P 500 ending down 0.7% at 3,972.61. The index is up 3.5% for the year so far. But the Nasdaq rose 0.6% and is up 6.4% since the start of the year. .SPX 1Y line sp Stocks that have missed earnings estimates have mostly been beaten down, like Goldman Sachs , which fell sharply when its earnings missed estimates Tuesday. Netflix , on the other hand, missed its earnings estimate Thursday but rose after it surprised with more new subscribers than expected. “Netflix missed but ended up having more enrollees so they were praised,” said Sam Stovall, chief investment strategist at CFRA. “On an earnings basis, it is company-by-company, but we are definitely seeing a downshift in growth expectations. And while employment reductions as we’ve seen at Amazon, Microsoft and Alphabet are ominous on a macro level, on a micro level it’s encouraging.” Analysts have widely expected earnings estimates to come down as the quarter proceeds. Grohowski said the decrease in those expectations is likely to send stocks lower too. “I think as earnings season works its way through, our view remains that we have a valuation problem. The Fed is tightening into an economy that is clearly weakening,” he said. He pointed to the weakness in housing, and the eleventh monthly decline for existing home sales. “Clearly there are sectors of the economy which are already in recession,” he said. “We’re in the camp expecting 70% chance of recession. It has not shown up yet in earnings. I think there will be adjustments to 2023 earnings, which are necessary.” Grohowski expects a short and shallow recession, unless the Fed raises interest rates above its end target of 5.1%. He said there then would be the risk of a hard landing if the central bank tightens too much. Stovall said earnings data already shows that the expectations and earnings are falling. “Earnings are continuing to be trimmed. On Dec. 31, the S & P was expected to show a 2.9% year-over-year decline for the fourth quarter. Now it’s 3.3%,” said Stovall. The data is sourced from S & P Global and is based on actual and estimated earnings. “Revenues were expected to be up 6%. They’re now up 4.9%. Also 2023 earnings [for the year] were expected to be up 2.8%. Now they are expected to be up 2%,” he said. Refinitiv data shows that the quality of earnings beats are falling. The percent of companies beating forecasts so far is 63.6%, well below the average of the last four quarters of 76%. The size of beats are also smaller. According to Refinitiv, S & P companies are beating earnings estimates by 2.3%. Since 1994, that number has averaged 4.1% and it was an average 5.3% in the past four quarters. “The potential for an earnings recession has increased,” Stovall said. He noted that S & P Global estimates for the first quarter show a decline of 1.3%, and a 2.9% drop is expected in the second quarter, he said. “It’s a mild earnings recession, but it’s an earnings recession. It’s adding straw to the camel’s back.” Grohowski said he is watching margins and the impact of inflation, which he expects to continue to decline. Procter & Gamble this week notably said its sales volume was dropping with higher prices . The company said high commodity prices are hitting its profits. “For a couple of quarters, everything was passed through,” he said. “The P & G numbers showed us the pressure on margins, which I think is going to be more prevalent in the quarters ahead…The ability to pass through becomes more challenging for a consumer that becomes more discerning.” Grohowski said he expects investors will be able to look ahead to improvement in 2024 later in the year. He also has a forecast for the S & P 500 at 4,150 at year-end. “We’re at 4,150 in part because I think inflation is coming down. There’s no doubt about it,” he said. Week ahead calendar Monday Earnings: Synchrony Financial, Baker Hughes, Zion Bancorp, FNB 10:00 a.m. Leading index Tuesday Earnings: Microsoft, Travelers, 3M, Johnson and Johnson, Verizon, General Electric, Lockheed Martin, Texas Instruments , Union Pacific, D.R. Horton, Raytheon, Intuitive Surgical, F5 Networks, Paccar, GATX, Canadian National Railway, Capital One, Halliburton , Danaher 9:45 a.m. S & P Global Manufacturing PMI [January flash] 9:45 a.m. S & P Global Services PMI [January flash] Wednesday Earnings: Tesla, Boeing, IBM , AT & T, CSX, Elevance Health , U.S. Bancorp, Whirlpool, Nasdaq, Abbott Labs, Norfolk Southern, General Dynamics, Textron , Knight-Swift Transportation, Ethan Allen, Levi Strauss , Steel Dynamics, United Rentals, Ameriprise, Hess, Kimberly-Clark, LendingClub, Lam Research, SL Green, Flex , Raymond James, Las Vegas Sands, Xerox, Wolfspeed Thursday Earnings: Intel, Visa, Comcast, SAP, Dow, Southwest Air, Blackstone, Mastercard , KLA Corp, Federated Hermes, LG Display, Archer Daniels Midland, Marsh & McLennan, Nucor, Tractor Supply, Diageo, Nokia, Weyerhaeuser, T. Rowe Price, Rockwell Automation, Valero Energy, McCormick, Xcel Energy, Murphy Oil 8:30 a.m. Initial jobless claims 8:30 a.m. Durable goods [December] 8:30 a.m. Real GDP [Q4 advance] 8:30 a.m. Advance economic indicators [December] 10:00 a.m. New home sales [December] Friday Earnings: American Express , Chevron , Colgate-Palmolive, Booze Allen Hamilton, Charter Communications, HCA Holdings 8:30 a.m. Personal income/spending [December] 10:00 a.m. Pending home sales [December] 10:00 a.m. Consumer sentiment [January]
Sumber: www.cnbc.com
