Weekly | Buoyant Stock Market Environment
Your weekly summary with the most important news for your investments.
Your weekly summary with the most important news for your investments, in this edition:
U.S. stock market performance
Interest rates and macroeconomic outlook
Upcoming events and economic outlook
Last Friday, unexpectedly, the U.S. stock indexes Dow (37,863.8 points) and S&P 500 (4,839.8 points) closed at all-time highs, accumulating gains of +0.5% and +1.5%, respectively, so far this year. The Nasdaq (15,311 points) meanwhile accumulated a +2% return and is still at a 4.8% discount to its all-time high reached in November 2021 in the midst of the pandemic.
Despite this buoyant stock market environment, led once again by the technology sector, we saw the 10-year sovereign rate close at 4.15% (+21 basis points) ratifying, quite possibly, a rotation from fixed income to equities in the most sophisticated investment portfolios. The higher the interest rate, the lower the price of fixed income instruments. This in a macroeconomic environment where year-over-year retail sales expanded +5.6% (from 4%) while industrial production expanded +1% (from -0.6%) aligning with a view of a "soft landing" of the economy in the first half of this year.
Even so, in this environment there were more companies that announced staff retirements, including Citibank, Macy's and the supermarket Wayfair. Meanwhile, in the political arena, yesterday the presidential candidate (and governor of Florida), Ron DeSantis, abandoned his presidential intentions, endorsing former President Donald Trump ahead of the primary to be held tomorrow in New Hampshire. Thus paving the way and cementing the presidential candidacy of Trump who did not even have to debate his opponents, given the support of the Republican base. All this was accompanied by an unusual intervention by the CEO of JP Morgan Chase, Jamie Dimon, who from the annual Davos conference argued that Trump's candidacy for the presidency was welcome from an economic and business perspective.
This week we will not only have two macroeconomic data that will play a role in the monetary policy meeting that the Federal Reserve (FED) will hold next week (between January 30 and 31) but we will also have the release of quarterly results of consumer and technology related companies, which will give us a better snapshot of the country's domestic demand. On the macroeconomic side, economic growth for the fourth quarter of the year (estimated at 2.2%) will be released along with PCE inflation data. The overall PCE inflation reading is expected to remain at 2.6% while the core figure, which excludes food and energy prices, is expected to drop to 3% (from 3.2%). On the corporate side, American Express, American Airlines, Comcast, IBM, Intel, J&J, Netflix, P&G, Tesla and Verizon among many others will be reporting. The weekly focus will be on Netflix's user growth while Tesla's ownership saga will continue after the previous week its CEO and largest shareholder, Elon Musk, said he wanted to control more than 20% of the company (currently with 13%) to implement new technologies as part of the company's development. However, he argued that he could also implement artificial intelligence and robotics from other non-automotive platforms, thereby sending a message to the automaker's board of directors. At the same time, the board of directors of the retail company Macy's formally rejected the potential privatization of the company by two private funds, which could take control of the company in a hostile manner if the company does not consider a new counterproposal. To date, Macy's has not allowed a due diligence of the company, arguing that the investment funds do not have the capacity to finance the transaction, which is estimated at US$5.8 billion.
This week, in addition, preceding the Fed's monetary policy meeting next week, we will have monetary policy meetings in Canada, the Eurozone and Japan, where for now no relevant changes are expected to be made by these issuing institutions in the expectation that inflation will ease in the following months. Even so, the president of the European Central Bank, Christine Lagarde, from Davos, when asked if there would be a possibility of lowering the monetary policy rate in the middle of the year, said the following:
"I would say it is also likely, but I have to be reserved."
This follows in the footsteps of the FED, which hinted at a possible cut in its monetary policy rate in the second half of the year.
On the quarterly results front, according to Factset, with banks having already reported their results, it is estimated that the fourth quarter 2023 sales of S&P 500 companies will expand +2.3% while profits will fall -1.7% compared to the same quarter of 2022. Having noted that, according to the same research house, these figures will rotate trend in 2024, closing with sales growth of +5.5% and profits of +12.2%, thus, in part, justifying the market valuations that have been recorded. However, next week the FED may sound a note of caution regarding the direction of the interest rate.
In conclusion, even though there are companies that have been announcing staff cuts in recent days going into the new year, for now market players continue to operate under the assumption that the FED will have to lower interest rates quickly to avoid an economic recession, however, inflation data may show enough resistance to dampen the buoyant stock market.
This Week
Monday (January 22)
Quarterly Reports
Brown & Brown, Inc.
Logitech International S.A.
United Airlines Holdings, Inc.
AGNC Investment Corp.
Hope Bancorp, Inc.
Tuesday (January 23)
Quarterly Reports
Johnson & Johnson
Procter & Gamble Company (The)
Netflix
Verizon Communications Inc.
General Electric Company
Economic Reports
Manufacturing Index Report, FED Richmond
Red Book Annual Change Report
Wednesday (Jan. 24)
Quarterly Reports
Tesla, Inc.
ASML Holding N.V.
Abbott Laboratories
International Business Machines Corporation
SAP SE
AT&T Inc.
Economic Reports
Preliminary Manufacturing Sector Report S&P Global
Preliminary Services Sector Report S&P Global
Thursday (January 25)
Quarterly Reports
Visa Inc.
Intel Corporation
T-Mobile US, Inc.
Comcast Corporation
Union Pacific Corporation
Economic Reports
Non-Perishable Goods Orders Report
Quarterly GDP Growth Rate
National Activity Index Report, FED Chicago
Friday (January 26)
Quarterly Reports
American Express Company
Colgate-Palmolive Company
Norfolk Southern Corporation
POSCO Holdings Inc.
First Citizens BancShares, Inc.
Economic Reports
Price Index Monthly Change Report
Personal Income Monthly Change Report
Personal Spending Monthly Change Report
Now you have more information about your investments. See you next week with more news.
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