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The Week Ahead: Stocks Continue to Gain Momentum as Traders Focus on Earnings Results
Positive Inflation News Sets the Stage for Stock Gains
Stocks are expected to continue gaining momentum in the upcoming week as traders shift their attention to earnings results. Encouraging consumer and wholesale inflation data in June has solidified the belief that the Federal Reserve is nearing the end of its rate-hiking campaign. According to the CME Group's FedWatch Tool, traders anticipate a 95% chance of a rate hike at the central bank's July meeting. However, they are 81% certain that the Fed will maintain its current rates in September. Market participants view the recent inflation data as a sign that the Fed may only make one more rate hike before pausing.
Earnings Season Takes Center Stage
With inflation data out of the way, market participants will shift their focus to earnings season. Expectations are low for this quarter, with S&P 500 earnings projected to have fallen nearly 9% year over year. However, some analysts believe that these low expectations create an opportunity for positive surprises. CFRA's Sam Stovall suggests that this period may mark the trough for earnings and advises traders to pay attention to forward guidance. The market has already had a strong start to the year, and a broadening of the rally has added to the optimism. BMO Wealth Management's Chief Investment Officer, Yung-Yu Ma, believes that the widening of the rally signifies market health and a positive future for equities.
Caution Surrounds Earnings Expectations
Not everyone shares the positive sentiment surrounding earnings season. MRB Partners warns that frothy valuations have raised the stakes for companies to meet or exceed expectations. The firm specifically notes that tech stocks are priced for perfection and should be avoided. U.S. equities are currently trading at around 20 times earnings, significantly higher than the long-term average. In the event of a recession, these valuations could plummet even further. Despite the caution, market participants are eagerly awaiting earnings reports from major banks such as Bank of America and Morgan Stanley, following the stronger-than-expected reports from JPMorgan Chase and Wells Fargo.
Light Economic Data, June Retail Sales in Focus
The upcoming week will be relatively light on major economic data, with the focus on June retail sales data, which is scheduled to be released on Tuesday. This data will provide insight into the state of consumer spending, and investors will be looking for any signs of weakness as fiscal stimulus savings are drained and borrowers resume student loan payments in the fall. Overall, the week ahead is expected to be driven by earnings reports and the reaction to those results.
Week Ahead Calendar
- 8:30 a.m. ET: Empire State Index (July)
- 8:30 a.m. ET: Retail sales (June)
- 9:15 a.m. ET: Industrial production (June)
- 10 a.m. ET: NAHB housing market index (July)
- Earnings: Bank of America, Morgan Stanley, Bank of N.Y. Mellon, Lockheed Martin, PNC Financial, J.B. Hunt
- 8:30 a.m. ET: Housing starts (June)
- Earnings: Nasdaq, Baker Hughes, Citizens Financial, Goldman Sachs, Halliburton, Kinder Morgan, Las Vegas Sands, IBM, Tesla, Netflix
- 8:30 a.m. ET: Initial jobless claims (Week ended July 15)
- 10 a.m. ET: Existing home sales (June)
- Earnings: Discover Financial, Truist, American Airlines, D.R. Horton, Equifax, Johnson & Johnson, KeyCorp, Snap-On, United Airlines, Newmont, CSX
- Earnings: Comerica, PPG, Roper Technologies, American Express
In conclusion, the upcoming week will be crucial for investors as stocks continue to gain momentum, driven by a shift in focus to earnings results. The positive inflation news in June has set the stage for potential stock gains, with traders anticipating the Federal Reserve to pause its rate-hiking campaign after one more rate hike. Earnings season takes center stage, and while expectations are low, there is potential for positive surprises. However, caution surrounds earnings expectations, with frothy valuations and the risk of a recession. Tech stocks, in particular, are advised to be approached with caution. The week will be relatively light on major economic data, with the focus on June retail sales data, which will provide insights into consumer spending patterns. As fiscal stimulus savings are drained and borrowers resume student loan payments, any signs of weakness in retail sales could have implications for new businesses in terms of consumer demand and market conditions. Overall, the market's reaction to earnings results and the ongoing economic indicators will heavily influence investors' sentiment and potentially impact new businesses navigating the current market environment.
Article First Published at: https://www.cnbc.com/2023/07/14/investors-count-on-market-momentum-in-week-ahead-as-earnings-rain-down.html