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The global business elite gather in the mountains of Davos, Switzerland this week for the World Economic Forum, where a slowing world economy, de-globalization, and war in Ukraine are set to dominate conversations as the world’s biggest stakeholders address the global outlook.
Back in the U.S., a holiday-shortened week will bring investors the government’s retail sales report, another notable inflation reading, and a big wave of corporate earnings results from giants like Goldman Sachs (GS), Netflix (NFLX), Procter & Gamble (PG), and American Airlines (AAL).
The U.S. stock and bond markets are closed on Monday, January 16, in observation of Martin Luther King, Jr. Day.
Davos resumes its regularly scheduled programming this week for the first time since 2020, after last year saw a slimmed-down version of the normally-bustling January event held in May.
The prospect of a global recession, post-pandemic challenges, climate change, and the crisis in Eastern Europe are poised to top the agenda for the politicians, CEOs, and billionaires in attendance.
Despite concerns about the economy, U.S. stocks have started the year on an uptrend. On Friday, all three major averages closed out their second consecutive winning week.
The technology-heavy Nasdaq Composite saw an outsized gain of 4.8% for the week, while the S&P 500 and Dow Jones Industrial Average registered their best performances since November, logging weekly advances of 2.7% and 2%, respectively.
Fourth quarter earnings season will kick into high gear in the week ahead, however, and could put this rally to the test.
Wall Street’s big banks set the tone with lackluster results that also showed a stockpiling of rainy day funds in preparation for a potential downturn. And some CEOs warned issued warnings on the economy.
“We still do not know the ultimate effect of the headwinds coming from geopolitical tensions including the war in Ukraine, the vulnerable state of energy and food supplies, persistent inflation, and the unprecedented quantitative tightening,” JPMorgan’s (JPM) Jamie Dimon said during an earnings call.
More heavyweights from the financial industry will roll out fourth-quarter numbers on Tuesday and Wednesday this week, including Wall Street’s premier investment bank Goldman Sachs (GS) – which reportedly laid off more than 3,000 workers last week — Morgan Stanley (MS), Interactive Brokers Group (IBKR), and Charles Schwab (SCHW).
Netflix results on Thursday will also be closely watched, with this quarterly update serving as a potential sign of things to come for the tech sector’s results, which are set to begin in earnest the following week.
The S&P 500 is expected to report a year-over-year decline in earnings of 3.9% for the fourth quarter, according to data from FactSet Research. This would mark the first year-over-year decline in earnings reported by the index since a 5.7% drop in the third quarter of 2020.
Jack Janasiewicz, lead portfolio strategist at Natixis Investment Managers Solutions, said in a note that the market seems to be split into two binary outcomes – earnings remain largely unchanged or fall another 10-15% by the end of the year.
“While consensus views a 2023 recession as inevitable, we find ourselves contemplating the old adage: ‘Never bet against the US consumer,'” Janasiewicz said. “We would add another: ‘Never underestimate the resiliency and flexibility of corporate America.'”
“Corporates are aggressively cutting costs to preserve margins,” he added. “With cost pressures easing and demand proving resilient, might that be the missing piece to the earnings puzzle that leads to a better-than-expected earnings per share outcome?”
On the economic data front, monthly retail sales data from the U.S. Census Bureau will offer a gauge of how consumers fared during December’s all-important holiday shopping season. Economists surveyed by Bloomberg expect a -0.9% drop in the headline number.
Bank of America strategists attribute the anticipated slump to larger-than-usual holiday discounts, a continued rotation back to services, and a post-pandemic trend that has emerged for consumers to front-load holiday spending.
“These factors, along with the acceleration in spending into the new year and the resilience of lower-income consumers, suggest that investors should look through the expected weakness in December retail sales and wait to see the January data before drawing strong conclusions on the health of the U.S. consumer,” BofA said.
Elsewhere in economic releases, the producer price index (PPI) will give investors a look at inflation at the wholesale level after last week’s Consumer Price Index (CPI) came in at a cooler 6.5%.
Economists surveyed by Bloomberg expect headline PPI in December rose at an annual rate of 6.8%, down from 7.4% during the prior month. And PPI excluding food and energy increased at a 5.5% clip over the year, also decelerating from 6.2% in November.
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Economic Calendar
Monday: No notable reports scheduled for release. Markets closed for Martin Luther King, Jr. Day.
Tuesday: Empire Manufacturing, November (-8.6 expected, -11.2 during prior month)
Wednesday: MBA Mortgage Applications, week ended Jan. 13 (1.2% during prior week); New York Fed Services Business Activity, January (-17.5 during prior month); Retail Sales Advance, month-over-month, December (-0.9% expected, -0.6% during prior month); Retail Sales Excluding Autos, month-over-month, December (-0.5% expected, -0.2% during prior month); Retail Sales Excluding Autos and Gas, month-over-month, December (-0.2% expected, -0.2% during prior month); Retail Sales Control Group, December (-0.4% expected, -0.2% during prior month); PPI Final Demand, month-over-month, December (-0.1% expected, 0.3% during prior month); PPI Excluding Food and Energy, month-over-month, December (0.1% expected, 0.4% during prior month); PPI Excluding Food, Energy, and Trade, month-over-month, December (0.2% expected, 0.3% during prior month); PPI Final Demand, year-over-year, December (6.8% expected, 7.4% during prior month); PPI Excluding Food and Energy, year-over-year, December (5.5% expected, 6.2% during prior month); PPI Excluding Food, Energy, and Trade, year-over-year, December (4.6% expected, 4.9% during prior month); Industrial Production, month-over-month, December (-0.1% expected, -0.2% during prior month); Manufacturing (SIC) Production, December (-0.2% expected, -0.6% during prior month); Capacity Utilization, December (79.6% expected, 79.7% during prior month); Business Inventories, November (0.4% expected, 0.3% during prior month); NAHB Housing Market Index, January (31 expected, 31 during prior month); Federal Reserve Releases Beige Book; Net Long-Term TIC Flows, November ($67.8 billion); Total Net TIC Flows, November ($179.9 billion)
Thursday: Building Permits, December (1.370 million expected, 1.342 million during prior month, revised to 1.351 million); Building Permits, month-over-month, December (1.4% expected, -11.2% during prior month, revised to -10.6%); Housing Starts, December (1357 million expected, 1.427 during prior month); Housing Starts, month-over-month, December (-4.9% expected, -0.5% during prior month); Philadelphia Fed Business Outlook Index, January (-11.0 expected, -13.8 during prior month, revised to -13.7); Initial Jobless Claims, week ended Jan. 14 (214,000 expected, 205,000 during prior week); Continuing Claims, week ended Jan. 7 (1.655 million expected, 1.634 million during prior week)
Friday: Existing Home Sales, December (3.95 million expected, 4.09 million during prior month); Existing Home Sales, month-over-month, December (-3.4% expected, -7.7% during prior month)
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Earnings Calendar
Monday: No notable reports scheduled for release. Markets closed for Martin Luther King, Jr. Day.
Tuesday: Goldman Sachs (GS), Morgan Stanley (MS), Interactive Brokers Group (IBKR), Signature Bank (SBNY), Pinnacle Financial Partners (PNFP), Old National Bancorp (ONB), Hancock Whitney Corp. (HWC), Citizens Financial Group (CFG), United Airlines (UAL)
Wednesday: Charles Schwab (SCHW), Discover Financial Services (DFS), PNC Financial Services (PNC), Kinder Morgan (KMI), J.B. Hunt Transport Services (JBHT), First Horizon Corp. (FHN), Alcoa (AA), Wintrust Financial (WTFC), H.B. Fuller Company (FUL), Prologis (PLD)
Thursday: Netflix (NFLX), Procter & Gamble (PG), American Airlines (AAL), Comerica Inc. (CMA), Truist Financial Corp. (TFC), PPG Industries Inc. (PPG), Fastenal Company (FAST), M&T Bank (MTB), Fifth Third Bancorp (FITB), Northern Trust Corporation (NTRS), KeyCorp (KEY), SVB Financial Group (SIVB)
Friday: Ally Financial (ALLY), Schlumberger (SLB), State Street Corp. (STT), Huntington Bancshares Inc. (HBAN), Regions Financial Corp. (RF), Ericsson (ERIC)
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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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