Despite a tick up in Treasury yields and a swath of more patient messaging from Fed members, last week all three major indices closed the week making new 52-Week Highs. Additionally, this included two new all-time highs for the Dow & S&P500 indices. This was a strong sign that the market will not require five or six rate cuts this year (as some expected) in order to keep moving higher.
This week, there are some major macroeconomic reports on deck which could be potential market-movers. Towards the end of the week the GDP report for Q4 will be released and we will get the latest PCE inflation number. PCE is admittedly the Fed’s preferred measure of inflation so this report will be crucial. To top things off, Q4 earnings season rolls on as major companies like Tesla Inc., Netflix, Inc., & Visa Inc., amongst others report their latest quarters.
- Gross Domestic Product (GDP) – Thursday morning is the U.S. fourth quarter GDP report. GDP of course is a measure to track the total value of the goods and services produced in the country. The previous two quarter’s reports for Q2 & Q3 showed that the U.S. economy had grown Q/Q 2.1% & 4.9% respectively.
- Forecasts project on average that U.S. GDP in the fourth quarter will have increased 1.7%.
- Personal Consumption Expenditures Price Index (PCE) – To close out the week, on Friday morning the new PCE & Core PCE data for the month of December will be released. The PCE price index data is gathered to track the costs that U.S. consumers are paying for goods and services and to document the change in these costs over time. Core PCE is a pared down measure that excludes more volatile categories like Food & Energy and this is the index the Fed watches the most closely.
- December’s Core PCE number is expected to increase by 0.2%, which would be slightly higher than the previous month’s report of 0.1%.
Federal Reserve Watch
Over the past week, the markets digested a gamut of new messaging fromvarious Fed members. Among the Fed members that spoke, they by and large all pushed the same message, that the FOMC will cut rates this year but that they are in no hurry to do so, and it will likely be later this year. The FOMC’s upcoming meeting is slated for January 30-31. Expectations were that at the FOMC’s meeting later this month that the committee would hold policy rates at current levels. Last week’s messaging from the various Fed members solidified that opinion.
- Looking beyond the meeting later this month, on to the March meeting, investors are now highly unsure if the FOMC will opt to ease policy at this meeting. The CME’s Fed Watch tool now shows that the market expects a 50.7% probability that the FOMC will opt to maintain current policy levels at the March meeting. However, this is the majority expectation by a thin margin. There is still a 48.1% probability of a policy rate cut. This is a significant change from one week ago when the market’s expectation was a 79.5% probability that the FOMC would lower policy rates in March.
All About the Earnings
On deck this week, is a fresh batch of earnings from a diversified group of major companies. Now that the financials are done reporting, we are getting into the heart of earnings season as more large-cap & mega-cap companies begin to report their fourth quarter earnings. Some of the companies that we will hear from this week that we would like to highlight are technology companies Netflix, Inc. & Tesla, Inc. Additionally, we will hear from blue chip companies, Procter & Gamble Co. & Johnson & Johnson, as well as the credit card giants Visa Inc. & American Express Co.
- After the market close on Tuesday, Netflix, Inc. is set up to report their Q4 results. The expectation is that NFLX will report significantly higher earnings compared to 2022’s Q4 number of $0.12 EPS. Following this, on Wednesday after the closing bell, Tesla, Inc. is expected to post their Q4 numbers. Investors will likely be looking for any clarity around recent Tesla price cuts as well as any effects from waning demand for EVs.
- NFLX earnings are expected to come in at $2.20 EPS.
- TSLA earnings are expected to come in at $0.60 EPS.
- Two major blue chip portfolio companies are expected to report their Q4 earnings this week. On Tuesday morning prior to the market open, both Procter & Gamble Co. & Johnson & Johnson are going to post their earnings numbers. Market expectations are that PG will post a nice increase in earnings compared to the same quarter last year, while JNJ will report a slight decrease.
- PG earnings are expected to come in at $1.71 EPS.
- JNJ earnings are expected to come in at $2.27 EPS.
- To close out this coming week’s major reports, two of the major credit card companies will report their Q4 earnings. On Thursday after the market closes, Visa Inc. will report their latest quarterly earnings. The following morning, their competitor American Express Co. will post their Q4 results. With recent retail spending reports continuing to show strong consumer spending, this should be a boon to these companies’ bottom line.
- V earnings are expected to come in at $2.33 EPS.
- AXP earnings are expected to come in at $2.64 EPS.
Thank you for reading this week’s edition of the Weekly Market Periscope Newsletter, I hope you enjoyed it. Please lookout out for the next edition of the newsletter as we will give you a preview of the upcoming week’s important market events.
Thanks,
Blane Markham
Author, Weekly Market Periscope
Hughes Optioneering Team
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