US stocks took a breather last week and Nasdaq ended its five-week winning streak. As earnings take a back seat, inflation and other economic data could drive markets next week.

Looking at the last week, Dow Jones fell slightly while S&P 500 lost 1.1%. The Nasdaq Composite, which had its best January in two decades, shed 2.4% and had its worst week since December.

Last week, the AI battle intensified as Microsoft announced its ChatGPT-powered Bing while Google released its Bard AI. Chinese internet giants are also in the process of bringing chatbots to their search engines.

Alphabet stock meanwhile tanked last week as its AI offering failed to please markets.

We had some key earnings last week. Uber impressed markets with its fourth-quarter earnings. However, rival Lyft provided dismal guidance and the stock lost over 36% on Friday.

Affirm’s earnings also disappointed markets and the BNPL (buy-now-pay-later) company missed both the topline and bottomline estimates for the quarter.

It also lowered its fiscal year 2023 guidance and announced that it is lowering its workforce by 19%. The decision would impact around 500 employees.

Tech layoffs also continued last week and Dell announced 6,500 layoffs. Life has come a full circle for PC companies and the industry which was crippled by supply since the onset of the COVID-19 pandemic, now finds itself saddled with too many unsold PCs.

Disney Posted Better Than Expected Earnings

Disney meanwhile posted better than expected revenues and profits in the December quarter. During the earnings call, CEO Bob Iger also offered more details on the transformation plan including a reorganization of the business and streamlining of the workforce.

Iger gave markets just what they wanted to listen to in the first earnings call ever since he returned as the CEO in November last year. Many analysts are bullish on Disney’s long-term story and advise buying the stock.

Robinhood’s revenues meanwhile trailed analysts’ estimates and the company’s active users fell for the sixth straight quarter.

The company’s revenues from crypto trading plummeted to a mere $21 million amid the crypto winter.

While the crypto markets have tanked many analysts recommend allocating a portion of your portfolio toward digital assets. There is a guide on how beginners can buy cryptocurrencies safely and with low fees.

Jerome Powell yet Again Talked About “Disinflation”

Earlier this month, Fed chair Jerome Powell announced a 25-basis point rate hike which lifted Fed fund rates to 4.50-4.75%. In that meeting, Powell used the “disinflation” for the first time in the current easing cycle.

Powell reiterated similar views last week at an event in Washington. 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.

Key Earnings Reports Next Week

The peak earnings season is behind us. But, there are still several key earnings releases next week. Coca-Cola, Airbnb, Cisco, and Krispy Kreme are among the companies that would release their earnings next week.

Meanwhile, we’ll get some key economic indicators, including the all-important January inflation data. The Labor Department has upwardly revised the December inflation reading to show that prices rose 0.1% in the month. The previous reading showed that CPI fell 0.1% on a monthly basis in December.

Key Economic Indicators to Watch Next Week

The revision has been due to a changed methodology which increased the weightage of housing. Next week’s CPI data will show how far the Fed is from its inflation target. Powell has said that the Fed would “react to the data” as it decides on interest rate hikes.

In a note, Morgan Stanley said, “Core inflation should move higher again in January as core goods deflation takes a pause and methodological changes boost the housing component.” It however added, “Updated index weights could inject additional volatility, but we see the path to disinflation intact beyond January.”

Morgan Stanley’s chief US equity strategist Mike Wilson expects US corporate earnings to fall further and is quite bearish on US stocks.

Apart from CPI, we’ll also get housing market indicators as well as retail sales data next week. US retail sales fell in December as high inflation and macroeconomic outlook dampened holiday spending.

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