The S&P 500 (SPX) added 1.1% last week as bulls continue to close in on the new big target – 5000. The old record high of 4818 is now acting as support with the index in a bull mode as long as it keeps closing above this level on a daily basis.
The S&P 500 rallied to fresh highs, driven by favorable economic data and strong tech earnings. Despite some initial concerns due to soft earnings from several industrial behemoths like GE, the market was buoyed by a less hawkish regional Fed survey and robust earnings from Netflix. A reserve rate cut from the PBOC also contributed to the surge.
The rally was further supported by a mix of "Goldilocks" economic data and a less hawkish European Central Bank decision. However, the week ended on a mixed note with soft guidance from Intel.
The Dow Jones Industrial Average (DJI) jumped 0.7% to secure a new weekly closing high. Finally, the Nasdaq Composite Index (IXIC) was up 0.9% although the bulls failed to secure a close near intra-week highs after Intel’s disappointing guidance.
Packed calendar
This week’s economic data and earnings calendar is packed with high-risk events.
“This could be the greatest week for “event risk” in many years -- or perhaps we could call it “event reward”,” analysts at Argus said in a note.
First, the Federal Reserve is set to conclude its two-day meeting on Wednesday.
“We expect the Fed to stay on hold at the January FOMC meeting and to change its policy rate guidance in the post-meeting statement to more neutral language,” economists at Bank of America said.
On Friday, we will hear about the state of the US jobs market in January.
“Job growth should again be narrowly driven by the public and high-touch service sectors,” the economists added.
Elsewhere, several ECB speakers are due to speak this week. CPI data in Europe, including Germany, is also set to be released this week.
Big Tech to report
With actual results in from 25% of S&P 500 companies, 69% have exceeded earnings per share expectations, while 68% have surpassed revenue forecasts, according to FactSet’s data. The earnings decline currently stands at -1.4%, while the estimated earnings growth for Q4 was +1.5%.
This week marks the busiest week of earnings with more than 100 companies, which are representing ~40% of the S&P 500 earnings, scheduled to report.
On Tuesday, Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL) are set to report their results for the December quarter. Furthermore, AMD (NASDAQ:AMD), United Parcel Service (NYSE:UPS), Pfizer (NYSE:PFE), and Starbucks (NASDAQ:SBUX) are also set to report.
Mastercard (NYSE:MA), Qualcomm (NASDAQ:QCOM), and Boeing (NYSE:BA) are highlight names for Wednesday, while tech behemoths Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), and Microsoft (MSFT) are scheduled to hit the stage on Thursday.
The busy earnings week is expected to be concluded with reports from oil giants Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX).
What analysts are saying about US stocks
Analysts at Oppenheimer: “We persist in favoring cyclicals over defensive sectors. • Established technology companies whose products and services are deeply embedded in the lives of business and consumers are likely to prove to be key holdings.”
Analysts at RBC: “Three big things you need to know: First, we’d describe 4Q23 reporting season as a mixed bag so far. Second, in our transcript review we were struck by the wide range of views on the macro backdrop and outlook as well as the continued emphasis on the challenges associated with inflation and higher costs. Third, we review the latest developments in our high frequency indicators including some modest improvements on some of our sentiment and valuation models.”
Analysts at JPMorgan: “We stay OW Growth vs Value, a position we held through 2023, and opposite to our Value preference that we held in 2021 and 2022. As long as the market stays narrow, heavily concentrated and Tech driven, the US is likely to have the upper hand vs Eurozone. We keep our preference for Quality Growth over Cyclical Value, which translates into a continued preference for the US over Eurozone.”
Goldman Sachs: “Many investors express concern about how a steepening and normalizing yield curve will affect equities, especially given the negative recent correlation between stocks and bond yields. However, economic growth matters more for equity returns than movements in the yield curve. Stocks have typically posted the greatest returns during periods of strong economic growth, regardless of whether the yield curve was steepening or flattening. Equity returns following yield curve normalization have also been positive provided the US economy avoided a recession.”
Analysts at BTIG: “The SPX has gained 12 out of the last 13 weeks. The last time that happened was 1985. Clearly upside momentum is strong, but it’s starting to show some exhaustion signals here. With 38% of SPX reporting this week, along with the FOMC meeting, a pause/pullback here is well overdue.”