US stocks were mixed last week but the January rally has clearly lost momentum. Here are the key earnings and economic indicators that markets would watch next week.
Looking back at the last week, US stocks whipsawed on Friday. While the Dow Jones gained around 0.4%, the Nasdaq Composite and S&P 500 respectively lost 0.58% and 0.28%.
During the week, the S&P 500 lost 0.28% while Dow Jones fell 0.13%. The Dow has now closed lower for three weeks while the S&P 500 had its second consecutive week in the red.
The Nasdaq meanwhile gained 0.59% last week. In the previous week, the tech-heavy index lost 2.4% and ended its five-week winning streak.
Last week, we got 13Fs from leading asset managers. Berkshire Hathaway’s filings showed that the Warren Buffett-led company sold most of its stake in Taiwan Semiconductor Manufacturing Co.
The Oracle of Omaha meanwhile bought more Apple stocks in the quarter. The conglomerate also added shares of Paramount Global and Louisiana-Pacific.
Greenlight Capital which is run by David Einhorn exited Rivian in Q4 2022 while George Soros also sold some Rivian shares.
The shares of the startup EV (electric vehicle) company trade at a fraction of their 2021 IPO price. It reports earnings later this month and might provide insights into the 2023 production forecast.
Inflation Reading Took a Toll on US Stocks Last Week
Last week, we got the CPI as well as wholesale inflation data. Both the readings were higher than expected which spooked investors and led to a sell-off in US stocks.
The CPI rose 0.5% on a monthly basis in January. The annualized inflation came in at 6.4% which was higher than the 6.1% that markets were expecting. If that was not all, the producer price index too rose 0.7% in January, which was ahead of the 0.4% that economists were expecting.
At the same time, the economic data was quite strong. The US economy added 517,000 new jobs in January which was over twice what the market expected. US retail sales increased by 3% in January which surpassed analysts’ estimate of 1.9%.
While usually strong economic data is good for stock markets, markers fear that it would lead to a hawkish Fed given the current macro environment.
The Fed has been raising rates to tame inflation. While high inflation is invariably a negative for stocks, some investment strategies can outperform in periods of high inflation.
Meanwhile, the earnings calendar was quite light last week. Among notable earnings, both DoorDash and Palantir impressed markets with their Q4 earnings. Both stocks surged after releasing their earnings report.
Retail Stocks Would be in Focus Next Week amid a Flurry of Earnings
The earnings calendar for the next week is quite busy despite it being holiday-shortened. Retail stocks would especially be in focus as Walmart, Home Depot, and eBay release their earnings. Retail earnings would continue in the following week also and Lowe’s and Best Buy would release their earnings.
Paul Nolte, market strategist at Murphy and Sylvest Wealth Management said in a note, “The retail sales numbers were reasonably strong, and we want to see that confirmation come from the retailers themselves.”
Next week, we’ll also get earnings from Nvidia, Coinbase, Block, and Beyond Meat. Chinese stocks would also be in focus as Alibaba and Baidu release their earnings. Chinese stocks have also come off their highs as the optimism over reopening has faded.
Fed Minutes Could Drive Markets Next Week
The minutes of the Fed’s January meeting would also be released next week. At the meeting which concluded on February 1, the Fed raised by 25 basis points. US stocks whipsawed after the meeting but eventually closed in the green as Fed chair Jerome Powell used “disinflation” multiple times.
At an event in Washington on February 7, Powell reiterated similar views. He said, “The disinflationary process, the process of getting inflation down, has begun and it’s begun in the goods sector, which is about a quarter of our economy.” He however cautioned, “But it has a long way to go. These are the very early stages.”
Powell however emphasized that the US central bank would continue to be data-dependent. Some Fed members favored a 50-basis point rate hike at the last meeting. The Fed minutes would offer more insights into the Fed’s thought process as it tries to tame inflation without significant damage to US economic activity.
A hawkish report might negatively impact US stocks which are now searching for direction after losing the upwards momentum.
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