Stock-market rally faces Fed, tech earnings and jobs data in make-or-break week

Stock-market investors may take their cues from a series of important events in the week ahead, including the Federal Reserve’s monetary-policy meeting, a closely-watched December employment report and an onslaught of earnings from megacap technology names, which all promise insight into the state of the economy and interest-rate outlook. 

The benchmark S&P 500 index
SPX
Thursday closed at a record high for five straight trading days, the longest streak of its kind since November 2021. The index finished slightly lower on Friday, but clinched weekly gains of 1.1%, while the Nasdaq Composite
COMP
advanced 1% and the blue-chip Dow Jones Industrial Average
DJIA
gained 0.7% for the week, according to Dow Jones Market Data.

“What we’re seeing is the market participants are still playing catch-up from 2023, putting money on the sidelines to work,” said Robert Schein, chief investment officer at Blanke Schein Wealth Management.

“Wall Street is still back at it trying to eke out gains as quickly as possible, so it’s very short-term oriented until we get big market-moving events,” he said, adding that one of the events could well be “a disappointing Fed speech.”

Fed’s Powell has good reasons to push back on rate cuts

Expectations that the Fed would begin easing monetary policy as early as March after its fastest tightening cycle in four decades have helped fuel a rally in U.S. stock- and bond-markets. Investors now mostly expect five or six quarter-point rate cuts by December, bringing the fed-funds rate down to around 4-4.25% from the current range of 5.25-5.5%, according to the CME FedWatch Tool. 

See: Economic growth underlined by fourth-quarter GDP reinforces Fed’s cautious approach to rate cuts

While no interest-rate change is expected for the central bank’s first policy meeting this year, some market analysts think comments from Fed Chair Jerome Powell during his news conference on Wednesday are likely to shift the market’s expectations and push back against forecasts of a March cut. 

Thierry Wizman, global FX and interest rates strategist at Macquarie, said a stock-market rally, “too-dovish” signals from the Fed’s December meeting, a still-resilient labor market and escalating Middle East conflicts may indicate that Powell has to keep the “[monetary] tightening bias” next week. 

The rally in the stock market could “conceivably backfire” by virtue of a loosening of financial conditions, while the labor market has not weakened to the extent that the Fed officials would have hoped, Wizman told MarketWatch in a phone interview on Friday.

Further complicating things, fears that inflation could spike again in light of the conflict in the Middle East and Red Sea could reinforce Fed’s cautious approach to rate cuts, he said. 

See: Oil traders aren’t panicking over Middle East shipping attacks. Here’s why.

Meanwhile, a shift to “neutral bias” doesn’t automatically mean that the Fed will cut the policy rate soon since the Fed still needs to go to “easing bias” before actually trimming rates, Wizman said. “I think the market gets too dovish and does not realize the Fed has very, very good reasons to push this [the first rate cut] out to June.” 

Markets are ‘laser-focused’ on January employment report

Labor-market data could also sway U.S. financial markets in the week ahead, serving as the “big swing factor” for the economy, said Patrick Ryan, head of multi-asset solutions at Madison Investments. 

Investors have been looking for clear signs of a slowing labor market that could prompt the central bank to start cutting rates as early as March. That bet may be tested as soon as Friday with the release of nonfarm payroll data for January.

Economists polled by The Wall Street Journal estimate that U.S. employers added 180,000 jobs in January, down from a surprisingly strong 216,000 in the final month of 2023. The unemployment rate is expected to tick up to 3.8% from 3.7% in the prior month, keeping it near a half century low. Wage gains are forecast to cool a bit to 0.3% in January after a solid 0.4% gain in December. 

“That’s going to have everyone laser-focused,” Ryan told MarketWatch via phone on Thursday. “Anything that shows you real weakness in the labor market is going to question if the equity market is willing to trade at 20 plus times (earnings) this year.” The S&P 500 is trading at 20.2 times earnings as of Friday afternoon, according to FactSet data. 

Six of ‘Magnificent 7’ may continue to drive S&P 500 earnings higher

This coming week is also packed with earnings from some of the big tech names that have fueled the stock-market rally since last year. 

Five of the so-called Magnificent 7 technology companies will provide earnings starting from next Tuesday when Alphabet Inc.
GOOG,
+0.10%

and Microsoft Corp.
MSFT,
-0.23%

take center stage, followed by results from Apple Inc.
AAPL,
-0.90%
,
Amazon.com
AMZN,
+0.87%

and Meta Platforms
META,
+0.24%

on Thursday. 

Of the remaining two members of the “Magnificent 7,” Tesla Inc.
TSLA,
+0.34%

has reported earlier this week with its results “massively disappointing” Wall Street, while Nvidia Corp.’s
NVDA,
-0.95%

results will be coming out at the end of February.

See: Here’s why Nvidia, Microsoft and other ‘Magnificent Seven’ stocks are back on top in 2024

A number of the companies in the “Magnificent 7” have seen their stock prices hit record-high levels in recent weeks, which could help to drive the value of the S&P 500 higher, said John Butters, senior earnings analyst at FactSet Research. He also said these stocks are projected to drive earnings higher for the benchmark index in the fourth quarter of 2023.

In One Chart: Tech leads stock market’s January rally by wide margin. Watch out for February.

In aggregate, Nvidia, Alphabet, Amazon.com, Apple, Meta Platforms, and Microsoft are expected to report year-over-year earnings growth of 53.7% for the fourth quarter of last year, while excluding these six companies, the blended earnings decline for the remaining 494 companies in the S&P 500 would be 10.5%, Butters wrote in a Friday client note.

“Overall, the blended earnings decline for the entire S&P 500 for Q4 2023 is 1.4%,” he said. 

Check out! On Watch by MarketWatch, a weekly podcast about the financial news we’re all watching — and how that’s affecting the economy and your wallet. MarketWatch’s Jeremy Owens trains his eye on what’s driving markets and offers insights that will help you make more informed money decisions. Subscribe on Spotify and Apple.  

Source link

#Stockmarket #rally #faces #Fed #tech #earnings #jobs #data #makeorbreak #week

Stock-market rally faces make-or-break moment. How to play U.S. October inflation data.

It has been a while since a hot inflation report sparked wild gyrations in U.S. stocks, like it frequently did in 2022, but that doesn’t mean Tuesday’s consumer price index for October is destined to be a snooze-fest for markets.

To the contrary, some Wall Street analysts believe it is possible, even likely, that the October CPI report could emerge as a critical catalyst for stocks, with the potential to propel the market higher on a softer-than-expected number.

At least one prominent economist expects the data to show that consumer prices were largely unchanged last month, or even fell.

“I would not be surprised to see a negative CPI inflation print for October,” said Neil Dutta, head of economics at Renaissance Macro Research, in commentary emailed to MarketWatch.

“After all, retail gasoline and heating oil prices declined a little over 10% over the month and we know that energy, while representing a small share of total CPI, roughly 7%, can account for a large chunk of the month-to-month swings in CPI.”

Markets at a crossroads

The October CPI report arrives at a critical juncture for markets. Investors are trying to anticipate whether the Federal Reserve will follow through with one more interest rate increase, as it indicated in its latest batch of projections, released in September.

Speaking on Thursday, Federal Reserve Chairman Jerome Powell left the door open to another move, but qualified this — as the Fed almost always has — by insisting that whatever the Fed decides, it will ultimately depend on the data.

These comments added even more emphasis to next week’s data, said Thierry Wizman, Macquarie’s global FX and interest rate strategist, in commentary emailed to MarketWatch on Friday.

“Our own view — expressed over the past few days — is that the Fed — and by extension the fixed-income markets — won’t be anticipatory. Rather, the Fed will be highly reactive to the data,” he said. “The next milestone is…CPI. It is likely to have a calming effect on markets, as traders weigh the prospect that a very low headline CPI result will further cool the prospect of excessive wage demands in the labor market.”

Asymmetric risks

While assessing the potential impact of a soft inflation report next week, at least one market analyst expects the market’s reaction to the June CPI report, released on July 12, might serve as a helpful template.

Stocks touched their highest levels of the year within that month, as many interpreted the slower-than-expected increase in prices as an important turning point in the Fed’s battle against inflation. The S&P 500 logged its 2023 closing high on July 31, according to FactSet data,

Tom Lee, who anticipated both the outcome of the June CPI report and the market’s reaction, told MarketWatch that, at this point, inflation would need to meaningfully reaccelerate to have an adverse impact on the stock market.

The upshot of this is that the risks for investors heading into Tuesday’s report are likely skewed to the upside. Even a slightly hotter-than-expected number likely wouldn’t be enough to derail the market’s November rebound rally. While a soft reading could reinforce expectations that the Fed is done hiking rates, likely precipitating a rally in both stocks and bonds.

“I’d say the setup looks pretty favorable,” Lee said.

Even a modestly hotter-than-expected number likely wouldn’t be enough to derail the market’s November rebound.

“I think the reaction function is changing for the stock market,” Lee said.

“Because the Federal Reserve and public market kind of viewed the September CPI as a pretty decent number, and Powell even referred to it as such. Earlier in 2023, I think people would have viewed it as a miss.”

U.S. inflation has eased substantially since peaking above 9% on a year-over-year basis last summer, the highest rate in four decades. The data released last month showed consumer prices climbed 0.4% in September, softer than the 0.6% from the prior month, but still slightly above expectations.

However, the more closely watched “core” reading reflected only a 0.3% increase, which was in-line with expectations.

How long will the ‘last mile’ take?

There is a perception on Wall Street and within the Federal Reserve that driving inflation down from 3% to the Fed’s 2% target could pose more difficulty for the Fed. After all, most of the easing from last summer’s highs was driven by falling commodity prices and supply-chain normalization as the economic impact of the COVID-19 pandemic faded.

Powell has repeatedly warned of a “bumpy ride,” and he reiterated on Thursday that the battle against inflation is far from over.

See: Powell says Fed is wary of ‘head fakes’ from inflation

Inflation data released this month, and in the months to come, could help to define investors’ expectations for how long this “last mile” might take, helping these reports regain their significance for markets.

“I like a calm market, but I think CPI is coming more in focus these days now that we’re getting closer to that 2% target,” said Callie Cox, U.S. investment analyst at eToro, during a phone call with MarketWatch.

Since the start of 2023, the S&P 500 index hasn’t seen a single move of 1% or greater on a CPI release day, according to FactSet data. By comparison, the biggest daily swings seen in 2022 occurred on CPI days, with the large-cap index sometimes swinging 4% or more in a single session.

Economists polled by FactSet expect consumer prices rose 0.1% in October, following a 0.4% bump in September. They expect a 0.3% increase for core prices, which excludes volatile food and energy. Powell has said that he’s keeping a close eye on core inflation, as well as so-called “supercore” inflation, which measures the cost of services inflation excluding housing.

To be sure, the CPI report isn’t the only piece of potentially market-moving news due during the coming week. Investors will also receive a monthly update from the Treasury that includes data on foreign purchases and sales of Treasury bonds, as well as a flurry of other economic reports, including potentially market-moving readings on housing-market and manufacturing activity.

There is also the producer-price index, another closely watched barometer of inflation, which is due out Thursday.

U.S. stocks have risen sharply since the start of November, with the S&P 500
SPX
up more than 5.3%, according to FactSet data.

Source link

#Stockmarket #rally #faces #makeorbreak #moment #play #October #inflation #data

Biden’s rebuke of a bold, reform-minded crime law makes all Americans less safe

President Joe Biden’s support for a Republican-led effort to nullify the Washington D.C. City Council’s revision of its criminal code, signed into law on Monday, plays into the fear narrative that is being increasingly advanced across the U.S.

Biden could have used his platform and clout to clarify the actual substance of the carefully crafted District of Columbia proposal — and adhere to his campaign commitment to reduce the number of incarcerated Americans.

Instead, the president ignored the glaring problems in D.C.’s existing criminal code, which the 275-page long package of revisions was designed to address. This included reforming the draconian and inflexible sentencing requirements that have swelled the District’s incarceration rate and wasted countless resources imprisoning individuals who pose no danger to public safety. By rejecting this decade-plus effort, the president decided that D.C. residents have no right to determine for themselves how to fix these problems.

There are communities across the U.S. that see virtually no violent crime, and it isn’t because they’re the most policed.

Biden’s decision is the latest backlash to U.S. justice reform coming from both sides of the political aisle.

Instead of doubling down on failed tough-on-crime tactics, Americans need to come together to articulate and invest in a new vision of public safety. We already know what that looks like because there are communities across the country which see virtually no violent crime, and it isn’t because they’re the most policed.

Safe communities are places where people (even those facing economic distress) are housed, where schools have the resources to teach all children, where the water and air are clean, where families have access to good-paying jobs and comprehensive healthcare, and where those who are struggling are given a hand, not a handcuff.

This is the kind of community every American deserves to live in, but that future is only possible if we shift resources from carceral responses to communities and shift our mindset from punishment to prevention. 

Too often it’s easier to advocate for locking people up than it is to innovate and advance a new vision for public safety. 

In the wake of particularly traumatic years, as well as growing divisiveness that has politicized criminal justice reform, it is not surprising that many people believe their communities are less safe. While public perceptions of crime have long been disconnected from actual crime rates and can be heavily influenced by media coverage, the data tells a mixed story. Homicide rates did increase in both urban and rural areas in the wake of the COVID-19 pandemic and record levels of gun sales.

While early available data suggests these numbers are trending down, it’s too soon to tell, especially given the nation’s poor crime data infrastructure. What is clear is that there is no evidence that criminal justice reform is to blame for rising crime, despite well-funded attempts by those resistant to change and who are intent on driving a political agenda to make such a claim stick. 

Yet fear often obscures facts; people are scared for their safety and want reassurance. Too often it’s easier to advocate for locking people up than it is to innovate and advance a new vision for public safety. 

We need leaders who can govern with both empathy and integrity – who can provide genuine compassion to those who feel scared while also following the data about how to create safer communities. And all the data points to the need for reform. 

Mass incarceration costs U.S. taxpayers an estimated $1 trillion annually.

Mass incarceration costs U.S. taxpayers an estimated $1 trillion annually, when you factor in not only the cost of confinement but also the crushing toll placed on incarcerated people and their families, children, and communities. Despite this staggering figure, there’s no real evidence that incarceration works, and in fact some evidence to suggest it actually makes people more likely to commit future crimes. Yet we keep pouring more and more taxpayer dollars into this short-sighted solution that, instead of preventing harm, only delays and compounds it. 

We have to stop pretending that reform is the real threat to public safety and recognize how our over-reliance on incarceration actually makes us less safe. 

Reform and public safety go hand in hand. Commonsense changes including reforming cash bail, revisiting extreme sentences and diverting people from the criminal legal system have all been shown to have positive effects on individuals and communities.

At a time of record-low clearance rates nationwide and staffing challenges in police departments and prosecutor’s offices, arresting and prosecuting people for low-level offenses that do not impact public safety can actually make us less safe by directing resources away from solving serious crimes and creating collateral consequences for people that make it harder to escape cycles of poverty and crime. 

Yet, tough-on-crime proponents repeatedly misrepresent justice reform by claiming that reformers are simply letting people who commit crimes off the hook. Nothing could be further from the truth. Reform does not mean a lack of accountability, but rather a more effective version of accountability for everyone involved. 

Our traditional criminal legal system has failed victims time and again. In a 2022 survey of crime survivors, just 8% said that the justice system was very helpful in navigating the legal process and being connected to services. Many said they didn’t even report the crime because of distrust of the system. 

When asked what they want, many crime survivors express a fundamental desire to ensure that the person who caused them harm doesn’t hurt them or anyone else ever again. But status quo approaches aren’t providing that. The best available data shows that 7 in 10 people released from prison in 2012 were rearrested within five years. Perhaps that’s why crime victims support alternatives to traditional prosecution and incarceration by large margins. 

For example, in New York City, Common Justice offered the first alternative-to-incarceration program in the country focused on violent felonies in adult courts. When given the option, 90% of eligible victims chose to participate in a restorative justice program through Common Justice over incarcerating the person who harmed them. Just 7% of participants have been terminated from the program for committing a new crime. 

A restorative justice program launched by former San Francisco District Attorney George Gascón for youth facing serious felony charges was shown to reduce participants’ likelihood of rearrest by 44 percent within six months compared to youth who went through the traditional juvenile justice system, and the effects were still notable even four years after the initial offer to participate.

Multnomah County District Attorney Mike Schmidt launched a groundbreaking program last year to allow people convicted of violent offenses to avoid prison time if they commit to behavioral health treatment. As of January, just one of 60 participants had been rearrested for a misdemeanor. 

While too many politicians give lip service to reform, those who really care about justice are doing the work, regardless of electoral consequences. We need more bold, innovative leaders willing to rethink how we achieve safety and accountability, not those who go where the wind blows and spread misinformation for political gain. 

Fear should not cause us to repeat the mistakes of the past. When politicians finally decide to care more about protecting people than protecting their own power, only then will we finally achieve the safety that all communities deserve. 

Miriam Aroni Krinsky is the executive director of Fair and Just Prosecution, a former federal prosecutor, and the author of Change from Within: Reimagining the 21st-Century Prosecutor. Alyssa Kress is the communications director of Fair and Just Prosecution.  

More: Wrongful convictions cost American taxpayers hundreds of millions of dollars a year. Wrongdoing prosecutors must be held accountable.

Plus: Senate votes to block D.C. crime laws, with Biden’s support

Source link

#Bidens #rebuke #bold #reformminded #crime #law #Americans #safe