After snapping a nine-week streak to start 2024, stocks got back to their winning ways last week.
All three major indexes advanced during the first full trading week of the year, led by a 3% gain for the Nasdaq Composite (^IXIC), while the S&P 500 (^GSPC) finished the week’s trading less than 13 points, or about 0.3%, away from a record high. To cap the week, Microsoft (MSFT) also overtook Apple (AAPL) as the world’s most valuable company.
In the week ahead, investors will look to keep the momentum going in a holiday-shortened week.
With US markets closed Monday in observation of Martin Luther King Jr. Day, results from the financial sector and Wednesday’s retail sales data should serve as the main calendar catalysts.
Retail sales are expected to rise 0.4% in December, an increase from the 0.3% gain in November, as US consumers continue to power a surprisingly durable economic expansion.
Michael Gapen, an economist at Bank of America, wrote that the firm expects the government to apply seasonal adjustments to December’s data that will lead to a “robust” retail sales number.
“Stepping back,” Gapen added, “we think spending is healthy but not surging.” Right now, the firm sees fourth quarter GDP tracking toward an annualized growth rate of 1.2%.
Elsewhere on the economic calendar, Thursday’s initial jobless claims data and a look at consumer sentiment from the University of Michigan out Friday will warrant a close look from investors.
Away from the earnings and economic calendar, Monday’s Iowa caucuses will mark the official start of the 2024 US presidential election. On the geopolitical front, rising tensions in the Red Sea — with the US and its allies carrying out airstrikes on consecutive days in Yemen last week — are garnering increased attention from investors.
A sign supporting Republican presidential candidate former President Donald Trump is displayed on January 11, 2024 in Adel, Iowa. Iowa voters are preparing for the Republican Party of Iowa’s presidential caucuses on January 15. (Photo by Kevin Dietsch/Getty Images) (Kevin Dietsch via Getty Images)
The coming week’s key earnings reports are expected Tuesday morning, with investment banks Goldman Sachs (GS) and Morgan Stanley (MS) set to offer results after a challenging year for the dealmaking business that features in their results.
Ken Leon, research director at CFRA, told Yahoo Finance Live on Friday, “I think the investment banking story [next week] will be, again, that we hit the trough of the cycle last year.”
Friday’s earnings season kickoff also featured results from Delta Air Lines (DAL), which disappointed investors and sent shares of the airline down nearly 9% and dragged peers United Airlines (UAL) and American Airlines (AAL) lower.
In a client note on Friday, Nancy Vanden Houten, lead US economist at Oxford Economics, flagged Red Sea-related disruptions as presenting an “upside risk” to the firm’s inflation forecasts.
With investors focused on how each incremental piece of inflation data could alter the Federal Reserve’s plans to cut interest rates this year, this past week’s data offered a marginal increase in conviction this process will begin in March.
“We have adjusted our baseline assumptions to assume that the FOMC will initiate every-other-meeting incremental cuts starting in March, two meetings earlier than before,” wrote Barclays economists led by Jonathan Millar on Friday.
He added: “This mainly reflects our downward revisions to core PCE price inflation, which significantly boost the likelihood that the FOMC will continue to see relatively soft monthly prints from this measure through February. Nonetheless, we regard March’s outcome as a much closer call than the ~80% likelihood being priced by markets.”
Barclays also sees rates proceeding at a “much more gradual” pace than markets are pricing in — Millar and team see rates falling 1% by the end of 2024, with markets expecting closer to 1.5% worth of rate cuts. The current fed funds rate stands in a range of 5.25%-5.50%.
Earnings themes to watch
The financial sector has taken the spotlight to begin earnings season.
But the big story for markets in 2023 focused on tech stocks and, in particular, the “Magnificent Seven” megacap leaders that powered the Nasdaq to a gain north of 40%.
Later this month, results from these names and other tech stalwarts will start to trickle in.
And how this sector performs will be of particular interest to investors as valuations for the Technology (XLK) sector have surged in anticipation of an AI-driven profit cycle.
At the end of 2023, data from Bank of America showed the Technology sector’s forward P/E ratio stood at 27, the second highest among all S&P 500 sectors — only Real Estate (XLRE), which saw valuations rise as earnings for the sector fell sharply, traded at a higher valuation (39). The S&P 500 as a whole traded at 19.8 times next year’s expected earnings.
With Technology accounting for more than 28% of the S&P 500’s market cap, these results will exert an outsized influence on the index’s overall direction.
In a note published Friday, John Butters at FactSet highlighted negative guidance offered by S&P 500 companies for fourth quarter results stood slightly above the recent five- and 10-year averages, with 111 members of the index cautioning the Street about forthcoming results. When looking at these warnings by sector, Technology is a standout.
FactSet’s data shows 25 members of the tech sector cautioned that earnings would miss forecasts in the fourth quarter, more than the 10-year average of 19 members of sector issuing a similar warning. Overall, there are 64 S&P 500 members in the sector.
Now, when it comes to the Magnificent Seven names in particular, sector-level nuance becomes a challenge — Meta Platforms (META) and Alphabet (GOOG, GOOGL) are components in the Communication Services (XLC) sector, while Amazon (AMZN) and Tesla (TSLA) are classified as Consumer Discretionary (XLY) names.
But all of these stocks are components in the Nasdaq, the market’s bellwether for investor sentiment.
And with the “tech trade” taking on a monolithic role in the mind of many investors last year, the party won’t really get started for fourth quarter earnings season until reports from these names start rolling in.
Weekly calendar
Monday
Economic data:Markets closed for Martin Luther King, Jr. Day
Earnings:Markets closed for Martin Luther King, Jr. Day
Tuesday
Economic data: NY Fed Empire Manufacturing, January (-4 expected, -14.5 previously)
Earnings: Goldman Sachs (GS), Morgan Stanley (MS), PNC Financial (PNC), Interactive Brokers (IBKR)
Wednesday
Economic data: Retail sales, December (+0.4% expected, +0.3% previously); Retail sales, ex auto and gas, December (+0.3% expected, +0.6% previously); MBA Mortgage Applications, week of Jan. 12 (+9.9% previously); Import price index, December (-0.6% expected, -0.4% previously); Export price index, December (-0.7% expected, -0.9% previously); Industrial production, December (0% expected, +0.2% previously); Business inventories, November (-0.1% expected, -0.1% previously); Federal Reserve Beige Book
Earnings: Charles Schwab (SCHW), Alcoa (AA), Discover (DFS), U.S. Bancorp (USB), Kinder Morgan (KMI), Citizens Financial (CFG), Prologis (PLD)
Thursday
Economic data: Initial jobless claims, week of Jan. 13 (205,000 expected, 202,000 previously); Housing starts, December (-8.7% expected, +14.8% previously); Building permits, December (+0.9% expected, -2.5% previously); Philly Fed business outlook, January (-7 previously, -12.8 previously)
Earnings: PPG (PPG), Fastenal (FAST), Bank OZK (OZK), KeyCorp (KEY), J.B. Hunt (JBHT), M&T Bank (MTB), Northern Trust (NTRS)
Friday
Economic data: University of Michigan consumer sentiment, Jan. preliminary (69.3 expected, 69.7 previously); University of Michigan 1-year inflation expectations, January (3.1% previously); Existing home sales, December (+0.3% expected, +0.8% previously)
Earnings: Travelers (TRV), State Street (STT), Regions Financial (RF), Ally (ALLY), Comerica (CMA), Fifth Third (FITB), Huntington Bancshares (HBAN)
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.
“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.
Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.
But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.
Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.
“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.
“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.
A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.
It would also be “counter to what they’ve signaled,” he said.
More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.
“That’s going to be more important than the size of the cut itself,” he said.
In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.
“Here, the labour situation is worse than what we see in the United States,” he said.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Sept. 13, 2024.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
