By Isabel Wang
December jobs report 'will have everyone focused': strategist
Stock market investors can take their cue from a series of major events coming next week, including the Federal Reserve's monetary policy meeting, a closely watched December jobs report and a flurry of company results. large-cap technology stocks, which promise information on the state of the economy and the outlook for interest rates.
U.S. stocks got a boost last week from encouraging data that showed inflation pressures continued to moderate in December, the latest sign that price increases are slowing significantly amid strong economic growth to wrap up 2023.
The benchmark S&P 500 SPX index closed at an all-time high for five consecutive trading days on Thursday, the longest streak of its kind since November 2021. The index finished slightly lower on Friday, but notched weekly gains of 1.1 %, while the Nasdaq Composite COMP advanced 1% and the Dow Jones Industrial Average DJIA gained 0.7% for the week, according to Dow Jones Market Data.
"What we're seeing is that market participants are still playing catch-up from 2023, putting the money set aside to work," said Robert Schein, chief investment officer at Blanke Schein Wealth Management.
"Wall Street is still trying to make profits as quickly as possible, so it's very short-term oriented until we have big market-moving events," he said, adding that one of the events could well be "a disappointing situation." . Federal Reserve Speech."
Fed's Powell has good reasons to reject rate cuts
Expectations that the Federal Reserve would begin easing monetary policy as early as March, after its fastest tightening cycle in four decades, have helped fuel a rally in U.S. stock and bond markets. Investors now mostly expect rate cuts of five or six quarter points by December, which will lower the federal funds rate to around 4-4.25% from the current range of 5.25-5.5. %, according to the CME FedWatch tool.
See: Economic growth underlined by Q4 GDP reinforces Fed's cautious approach to rate cuts
While no change in interest rates is expected for the central bank's first policy meeting this year, some market analysts believe that Fed Chair Jerome Powell's comments during his Wednesday press conference are likely change market expectations and counter forecasts of a cut in March. .
Thierry Wizman, global currency and interest rates strategist at Macquarie, said a stock market rally, "too dovish" signals from the Federal Reserve's December meeting, a still resilient labor market and escalating conflicts in the East Medium may indicate that Powell has to maintain the "[monetary] "restrictive trend" next week.
The stock market rally could "possibly backfire" under an easing of financial conditions, while the labor market has not weakened to the extent that Federal Reserve officials would have expected, Wizman told MarketWatch in a telephone interview on Friday.
To further complicate matters, fears that inflation could spike again in light of conflict in the Middle East and Red Sea could reinforce the Fed's cautious approach to rate cuts, he said.
See: Oil traders are not panicking about maritime attacks in the Middle East. This is why.
Meanwhile, a shift toward a "neutral bias" does not automatically mean the Fed will cut the policy rate soon, as the Fed still needs to adopt an "easing bias" before actually cutting rates, Wizman said. "I think the market becomes too dovish and doesn't realize that the Fed has very, very good reasons for pushing this. [the first rate cut] until June."
Markets 'focused' on January jobs report
Labor market data could also weigh on U.S. financial markets in the coming week, serving as the "big swing factor" for the economy, said Patrick Ryan, head of multi-asset solutions at Madison Investments.
Investors have been looking for clear signs of a labor market slowdown that could lead the central bank to start cutting rates as early as March. That bet could be tested Friday with the release of January nonfarm payrolls data.
Economists surveyed by The Wall Street Journal estimate that U.S. employers added 180,000 jobs in January, up from a surprisingly strong 216,000 in the final month of 2023. The unemployment rate is expected to rise to 3.8% from 3. 7% from the previous month, holding is near the half-century low. Wage gains are forecast to cool slightly to 0.3% in January after a solid 0.4% increase in December.
"That's going to get everyone focused," Ryan told MarketWatch by phone Thursday. "Anything that shows real weakness in the labor market will call into question whether the stock market is willing to trade at more than 20 times (earnings) this year." The S&P 500 was trading at 20.2 times earnings as of Friday afternoon, according to FactSet data.
Six of the 'Magnificent 7' May Continue to Drive S&P 500 Gains
Next week will also be packed with results from some of the big tech names that have fueled the stock market rally since last year.
Five of the so-called 7 Magnificent Tech Companies will report results starting next Tuesday, when Alphabet Inc. (GOOG) and Microsoft Corp. (MSFT) take center stage, followed by results from Apple Inc. (AAPL), Amazon.com (AMZN ) and Meta Platforms (META) on Thursday.
Of the two remaining members of the "Magnificent 7," Tesla Inc. (TSLA) reported its "hugely disappointing" results on Wall Street earlier this week, while Nvidia Corp.'s (NVDA) results will be released at the end. of the month of February.
See: Here's why Nvidia, Microsoft and other 'Magnificent Seven' stocks will be back on top in 2024
Several of the "Magnificent 7" companies have seen their stock prices hit record highs in recent weeks, which could help boost the value of the S&P 500, said John Butters, senior earnings analyst at FactSet Research. He also said these stocks are expected to drive the benchmark's gains in the fourth quarter of 2023.
On a chart: Technology leads the January stock market rally by a wide margin. Be careful with February.
Collectively, Nvidia, Alphabet, Amazon.com, Apple, Meta Platforms and Microsoft are expected to post 53.7% year-over-year profit growth for the fourth quarter of last year, although these six companies are excluded, the decline in The combined gains for the remaining 494 companies in the S&P 500 would be 10.5%, Butters wrote in a note to clients on Friday.
"Overall, the combined earnings decline for the entire S&P 500 for the fourth quarter of 2023 is 1.4%," he said.
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-Isabel Wang
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01-28-24 1230ET
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