As Wall Street gears up for the corporate earnings season, investors are eagerly anticipating reports from major financial institutions and a critical assessment of inflation trends in the week ahead.
A pivotal event is the release of the Consumer Price Index (CPI) for December on Thursday morning, followed by the Producer Price Index (PPI) for the same month on Friday. Simultaneously, heavyweight banks including JPMorgan, Wells Fargo, Bank of America, BlackRock, and Citi are set to kick off the fourth quarter earnings season, offering insights into the financial sector’s performance.
Entering the reporting period, the stock market appears to be in a cooldown phase, with the S&P 500 experiencing a negative start to 2024 after nine consecutive weeks of gains. The Nasdaq and Dow Jones Industrial Average also saw declines in the past five trading sessions. Despite this, a positive December jobs report showcased the robustness of the US labor market, with 216,000 jobs added and a steady unemployment rate of 3.7%.
Of particular interest is the average hourly earnings data, indicating a 0.4% monthly increase and a 4.1% rise over the previous year. This uptick raises questions about inflation and complicates the Federal Reserve’s efforts to maintain its target rate of 2%. The ongoing debate surrounding potential interest rate cuts persists, with Goldman Sachs predicting the first cut in March, while market odds currently stand at around a 66% chance of a rate cut in March.
The upcoming CPI report for December will be crucial in shaping the outlook on inflation. Wall Street economists project a 3.2% annual increase in headline inflation, with a slight monthly rise of 0.2%. On a core basis, excluding food and energy prices, a 3.8% annual increase is expected, signaling a slowdown from November. Wells Fargo’s economics team anticipates that the CPI report will support the view of a slowing trend in inflation, potentially paving the way for rate cuts in June.
On the corporate side, heavy hitters like Delta Air Lines, JPMorgan, Citi, Wells Fargo, Bank of America, and BlackRock are set to report fourth-quarter earnings. Investors will closely watch for updates on consumer spending and how financials are navigating the higher rate environment. The prospect of Fed interest rate cuts in 2024 could impact bank stocks positively, according to Wells Fargo analyst Mike Mayo.
Amidst varying predictions on corporate performance, Wall Street sentiment has become increasingly pessimistic about fourth-quarter earnings, with estimates for S&P 500 earnings falling 6.8% since September 30. Deutsche Bank’s chief US equity strategist, Binky Chadha, anticipates a more robust quarter for earnings but cautions that the market rally might be tempered by the strong performance leading up to the reporting season.
In summary, the upcoming week promises a wealth of information on both economic and corporate fronts, with a focus on inflation data, bank earnings, and their potential impact on the broader market.
