After a weak start in 2023, US stock markets have strengthened. Last week, US stocks rebounded and had their best week since November. Here are the key earnings and economic indicators that investors would watch next week amid recession fears.
To begin with, let’s dive a bit into last week’s performance. The Nasdaq gained 4.8% in the week as tech stocks rebounded. The S&P 500 rebounded 2.67% while the Dow Jones added only about 2%.
Earnings season for the fourth quarter of 2022 kickstarted last week and we had plenty of bank earnings. While the bank earnings were mixed, a common theme was the increase in loan loss reserves amid the deteriorating economy.
Banks also flagged recession warnings during their earnings call. Bank of America CEO Brian Moynihan said that a mild recession is the firm’s “baseline scenario” for 2023.
He added, “But we also add to that a downside scenario, and what this results in is 95% of our reserve methodology is weighted toward a recessionary environment in 2023.”
US Banks Warn of Recession during Earnings Call
JPMorgan Chase, whose CEO Jamie Dimon warned of a recession last year also, echoed similar views during the Q4 2022 earnings call. America’s largest bank said that a “mild recession” is the central case now. Citibank also predicts a mild recession in the back half of 2023.
Wells Fargo CFO Mike Santomassimo said during the earnings call that the bank is preparing for the US economy to “get worse than it’s been over the last few quarters.” The World Bank has also warned of a global recession in 2023.
While recession impacts most sectors of the economy, some of the investments are largely recession-proof.
Fed’s rate hikes, recession fears, and the fallout of FTX bankruptcy have also taken a toll on digital assets. There is a guide on whether crypto is recession-proof.
Meanwhile, CPI data released last week showed that US inflation continues to trend downwards. On a monthly basis, the CPI fell 0.1% as compared to November. The annualized pace of inflation also slowed to 6.5% as compared to 7.1% in November. The annual pace of price rise has fallen every month after peaking at 9.1% in June.
Key Earnings to Watch Next Week
While the next week is holiday-shortened on account of the holiday on account of Martin Luther King Jr. Day on Monday, we still have plenty of earnings lined up for the week.
However, bank earnings would dominate the headlines on Tuesday as Goldman Sachs and Morgan Stanley report their quarterly reports. United Airline would be the other notable earnings report of the day.
On Wednesday, Alcoa, Kinder Morgan, and J.B. Hunt Transport are expected to release their quarterly earnings. Thursday, Netflix and Proctor & Gamble would release their quarterly earnings.
Netflix lost over 50% last year even as it rebounded sharply from its 2022 lows. Cowen listed Netflix stock as a top idea for 2023. There is a guide on buying Netflix stock.
On Friday, Ally Financial and Schlumberger would report their quarterly earnings. Markets would watch the earnings quite closely amid growing recession fears.
Key Economic Indicators to Watch Next Week
Along with the earnings, the economic calendar is quite busy. We’ll get the December retail sales data on Wednesday. Several housing indicators are also lined up for the week.
The US housing market has weakened significantly over the last six months amid a slowing economy and rising interest rates. Rising interest rates took a toll on risk assets last year. However, some investment strategies can outperform during high inflation.
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