Ready to ride the wave of huge momentum in the stock market this week? Investors are about to confront a wave of economic data and decide whether the ongoing rally to record highs will last.
In the past two weeks, the S&P 500 has hit record highs, buoyed by earnings optimism and data showing that the US economy is growing at a healthy clip even as inflation continues to cool.
With three big events looming, this week could make or break the rally of the last two weeks.
Earnings frenzy among megacaps–Stock market this week
On Tuesday, Microsoft and Alphabet report earnings results, kicking off the frenzy. The commentary relating to artificial intelligence, which both companies are at the forefront of, and the impact it will have on their businesses in 2024 and beyond will be of particular interest to investors.
After a year of low single-digit profit growth in 2023, analysts’ profit expectations for this year are on the high end.
In a recent note to clients, DataTrek co-founder Nicholas Colas said that markets are walking a fine line between lower interest rates and higher corporate earnings. “US equity valuations offer little room for error.”
FactSet data indicates that Wall Street expects the S&P 500’s earnings growth in 2024 to be 12.2%, an increase that has accelerated in recent months and is well above the 10-year average. Analysts could adjust their profit estimates lower if earnings guidance disappoints.
The Federal Reserve comes into play–Stock market this week
By 2 pm this Wednesday, investors will be paying close attention to the Federal Reserve’s latest interest rate decision and Jerome Powell’s follow-up speech.
As the Fed is expected to keep interest rates unchanged, Powell will likely provide insight into when the central bank plans to consider its first interest rate cut since 2019, as well as how many rate cuts it anticipates in 2024.
Currently, investors expect six 25 basis point rate cuts from the Fed in 2024, but the Fed has guided for only three.
As the gap between investors and the Fed narrows, that’s a big disconnect that could affect markets.
As a result of economic growth, a tight labor market, and above-target inflation, the journey across the monetary policy bridge is likely to be longer and riskier, as market players now expect the first Fed cut in May rather than March. According to José Torres, Interactive Brokers’ Senior Economist.
On Thursday, Apple and Amazon will release their fourth-quarter earnings, following the Fed meeting.
Over trillion in S&P 500 market value will report earnings next week, giving investors a good idea of corporate profit growth.
The stock market is going to have a huge week this week
Investors will have to deal with a wave of economic data and decide whether the ongoing rally to record highs will continue.
As the US economy continues to grow at a healthy clip despite inflation cooling, the S&P 500 is coming off two weeks of record highs in the benchmark index. Earnings optimism and data showing the US economy is growing at a healthy clip have buoyed the benchmark index.
With three major events looming, this week could make or break the rally of the last two weeks.
Earnings frenzy among megacaps
On Tuesday, the tech giants Microsoft and Alphabet will release their earnings results, kicking off the frenzy. Both companies are at the forefront of artificial intelligence, and investors will pay close attention to commentary about it in 2024 and beyond.
After low single-digit profit growth in 2023, analysts expect high profit expectations this year.
In a recent note to clients, DataTrek co-founder Nicholas Colas said that US equity valuations offer little room for error between lower interest rates and higher corporate earnings.
Wall Street expects the S&P 500 earnings to grow 12.2% in 2024, a rate that has accelerated in recent months and is well above its 10-year average. In case earnings guidance disappoints, analysts may lower their profit estimates, sending the stock market down.
The Federal Reserve comes into play
On Wednesday at 2 pm, investors will be focusing on the Federal Reserve’s latest interest rate decision and Jerome Powell’s follow-up speech.
Although the Fed is expected to keep interest rates unchanged, Powell may provide insights into when the central bank will consider its first interest rate cut since 2019 and how many interest rate cuts it expects in 2024.
Currently, investors expect six 25 basis point interest rate cuts from the Fed in 2024, but the Fed has only guided for three.
As the gap between investors and the Fed narrows, that’s a big disconnect for the market.
“This level of economic growth alongside a tight labor market and above-target inflation is likely to make the journey across the monetary policy bridge longer and riskier, with market players now pricing in the first Fed cut in May versus March.” Interactive Brokers Senior Economist José Torres said.
On Thursday, Apple and Amazon will release their fourth-quarter earnings, following the Fed meeting.
Over trillion in S&P 500 market value will report earnings results next week, giving investors a good sense of corporate profit growth.
A job report is on the way
An economic data dump will cap off the week on Friday with the release of the January jobs report and an update on unemployment.
According to current estimates, the economy added 216,000 jobs in January, and the unemployment rate remained at 3.7%.
A strong jobs report coupled with a strong fourth-quarter GDP report could delay the Fed’s interest rate cut schedule, whereas a weak labor market would hasten the Fed’s decision to cut rates to prevent recession.
As investors grapple with whether or not the record rally can continue, the one-two punch of corporate earnings and economic data could ultimately determine the direction of the stock market for weeks.
Investing in the market is likely to be determined by investors’ perception of whether a strong economy will support earnings growth or by fears that prolonged monetary tightening will impact earnings, valuations, and economic prospects,” Torres said.