Rally in focus, Powell speaks, more earnings pour in: What to know this week

The recent rally in the stock market, and whether the momentum can be sustained through February, will be the main focus next week as investors continue to scrutinize a torrent of corporate financial results.

Wall Street is facing a tight economic calendar in the coming days, but plenty of gains, with companies including Walt Disney (DIS), Robin Hood (HOOD), Uber (UBER) and Pinterest (PAWS) among the headliners who will report fourth-quarter numbers.

While few government data releases are available in this first full week of February, on the economic front, comments from Federal Reserve Chairman Jerome Powell will be the highlight of the week. Powell is scheduled to be interviewed by billionaire Carlyle Group founder David Rubenstein at the Economic Club in Washington, DC on Tuesday.

US stocks fell on Friday after a surprising January jobs report showed payrolls rose by more than half a million last month, dimming prospects of an imminent pause by the Fed in its rate-hike campaign, a key factor driving the rally in January.

US Federal Reserve Chairman Jerome Powell attends a press conference in Washington, DC, the United States, on Feb. 1, 2023. (Photo by Liu Jie/Xinhua via Getty Images)

He The US economy added 517,000 jobs last month, beating economists' expectations for a reading of 188,000, while the unemployment rate fell to 3.4%, the lowest since 1969.

Despite Friday's losses, the S&P 500 and Nasdaq Composite ended the week higher, advancing 1.6% and 3.3% respectively. The Dow failed to turn in a weekly gain, ending the last five trading days down 0.2%.

Stock markets have been on a winning streak since the start of 2023, with optimism fueled by a recent slowdown in the Federal Reserve shifting down to smaller rate hikes and markets pricing in rate cuts this year. . For the year, the S&P 500 was up 7.7% at Friday's close, the Nasdaq 14.7% and the Dow 2.4%.

Many strategists have expressed doubts about the current rally. Last week at the iConnections Global Alts Conference in Miami, Morgan Stanley's top stock analyst Mike Wilson, a noted stock market bear, attributed the recent gains to the January Effect, a market theory that implies that Stock prices rise in the month of January more than in any other month after a year-end settlement for tax purposes.

On Wednesday, the US central bank raised its benchmark policy rate by another 25 basis points, its eighth rise in the current tightening cycle, while signaling "continued increases in the target range." Despite that hint, markets cheered Chairman Powell's suggestion that there were signs of "disinflation" in the economy.

"Powell embraced the recent disinflation to a greater extent than we expected," Bank of America economists led by Michael Gapen said in a note published Friday. "Financial markets received a clear dovish signal from Powell's press conference, with the S&P 500 ralliing nearly 2.4% since the start of the press conference and the 2-year yield falling around 14 basis points."

"Looking ahead, the key question for markets is whether Powell's dovishment was intentional or accidental," the BofA team said, adding that Powell could take a more aggressive tone during his appearance at the Economic Club this week. "We believe the Fed's embrace of disinflation is genuine and it was always going to be difficult for Powell to send a hawkish message after slowing rate hikes for the second time in as many meetings."

On the earnings side, earnings continue to be less than halfway through the season. The share of S&P 500 companies reporting positive earnings surprises held steady over the past week, but the magnitude of the upside earnings surprises decreased, largely due to disappointing results from large-cap tech giants, according to FactSet Research.

"As a result, the earnings decline for the fourth quarter is larger today compared to the end of last week and compared to the end of the quarter," said John Butters, senior earnings analyst at FactSet. "If the index reports an actual decline in earnings for the fourth quarter of 2022, it will mark the first year-over-year decline in earnings reported by the index since the third quarter of 2020.

Disney Chief Executive Officer Bob Iger speaks during the Bloomberg Global Business Forum in New York City, New York, U.S., September 25, 2019. REUTERS/Shannon Stapleton — Disney Chief Executive Officer Bob Iger speaks during the Bloomberg Global Business Forum in New York City, U.S., September 25, 2019. REUTERS/Shannon Stapleton

In the coming week, Disney's results will be the big event on the earnings calendar.

For Disney, it will be the first time it has reported since Bob Iger's return as CEO after former CEO Bob Chapek was ousted.

Sophie Lund-Yates, an equity analyst at Hargreaves Lansdown, says Iger is under pressure to show he has the right ideas to spur growth.

"This is especially true in the broadcast business, where excessive spending and long-term demand concerns are top of mind," Lund-Yates said in a note. "For now, consumer spending is holding up better than feared in some areas, so we're confident Disney+ will succeed with subscriber additions, especially after Netflix's better-than-expected quarter, despite of difficult economic conditions.

"In theme parks, we expect to hear some positive momentum as China reopens and travel continues to normalize," Lund-Yates added. "This will have a strong extrapolation for earnings."

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Economic Calendar

Monday: There are no notable reports scheduled for publication.

Tuesday: Balance of tradeDecember (-$68.5 billion expected, -$61.5 billion in the prior month, revised to -$90.2 billion); consumer creditDecember ($25.000 billion expected, $27.962 billion during the prior month)

Wednesday: MBA Mortgage Applicationsweek ending February 3 (-9.0% over the prior week); Wholesale trade salesmonth-over-month, November (0.4% over the prior month); wholesale inventoriesmonth-over-month, end-November (1.0% expected, 1.0% over prior month)

Thursday: unemployment claimsweek ending February 4 (190,000 expected, 183,000 during the prior week); continuing claimsweek ending January 28 (1.660 million expected, 1.655 million during the previous week)

Friday: Sentiment from the University of MichiganFebruary Preliminary (65.0 expected, 64.9 prior reading); monthly budget statementJanuary (-$42 billion, -$85 billion)

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earnings schedule

Monday: Activision Blizzard (ATVI), Chegg (CHGG), Cummins (WCC), ON Semiconductor (IN), Pinterest (PAWS), Simon Property Group (GSP), Spirit Airlines (SAVE), Take-Two interactive software (TWO), Tyson Foods (TSN)

Tuesday: securing (BEHIND), PA (PA), Chipotle Mexican Grill (CMG), DuPont (DD), Fortinet (FTNT), H&R Block (HRB), Hertz Global (HTZ) KKR (KKR), Prudential (PRU), Royal Caribbean (RCL), VF Corp (HRV), Western Union (WU)

Wednesday: assert (AFRM), AllianceBernstein (AB), CME Group (CME), Coty (COTY), CVS Health (cvs), Domain Energy (D.), Equifax (effects), Fox Corporation (FOX), Goodyear tires (GT), Hillenbrand (HELLO), Mattel (MAT), MGM Resorts (MGM), New York Times (NOW), Penske Auto (P), Robinhood Markets (HOOD), Sonos (AM), principle of medical care (THC), Uber Technologies (UBER), Walt Disney (DIS), XPO (XPO), Hmm! Trademarks (Hmm)

Thursday: Abb Fri (ABBV), Apollo Global Management (APO), Astra Zeneca (AZNL), Brookfield Asset Management (bam), canopy growth (GCC), duke of power (ALL), Expedia Group (EXP.), Hilton (HLT), Kellogg (what) Lyft (LYFT), News Corp (NWSA), PayPal (PPPL), PepsiCo (ENERGY), Philip Morris International (P.M), Ralph Lauren (R.L.), S&P Global (SPGI), Thomson Reuters (TRI), Under Armor (SAU), Veri Sign (NSVR), Willis Towers Watson (wtw), Yelp (YELP)