Super Week for US Stocks! What to Focus on?

After another week of approaching record highs, the US stock market is entering its busiest week of the quarter. According to Zhitong App, after experiencing volatility at the beginning of the year, the Pro UltrPro Shrt S&Pro 500 and NASDAQ Composite Index have risen more than 2% since January. Meanwhile, the Dow Jones Industrial Average has risen over 1%.

The upcoming week will be the most important week on Wall Street so far in 2024. Central bank policy meetings will be in focus, including the Federal Reserve and the Bank of England. The earnings season for US stocks is reaching its peak, with most of the "Big Seven" companies set to announce their performance. In addition, key data such as the US non-farm payroll report for January will also be released, with expectations that the US data will support signs of a soft landing.

Federal Reserve interest rate decision is highly anticipated

Among them, at 03:00 on Thursday Beijing time, the Federal Reserve will announce its latest policy decision. Investors expect the Federal Reserve to keep interest rates unchanged in the range of 5.25% to 5.50%. Investors will closely watch any comments from Federal Reserve Chairman Jerome Powell during his press conference on Wednesday to understand when the Federal Reserve may start cutting interest rates.

It is understood that the market narrative has changed significantly since Powell's last appearance in December. Investors heavily bet on a rate cut in March, but then reduced those bets as economic growth continued to exceed expectations.

However, many Wall Street economists still believe that the Federal Reserve will begin cutting interest rates in the near future due to inflation falling to its lowest level in nearly three years.

Andrew Hunter, Deputy Chief US Economist at Capital Economics, wrote in a report to clients, "It is time for Federal Reserve officials to accept victory and start relaxing policy restrictions as soon as possible."

Nevertheless, investors still have different opinions on when the rate cut will happen. As of Friday afternoon, the market's expectation for a rate cut in March by the Federal Reserve was 47%, according to the CME FedWatch tool. Looking ahead to May, investors believe there is an 88% chance of a rate cut by the end of that meeting.

Michael Gapen, economist at Bank of America, expects the Federal Reserve to change the neutral wording about policy tightening in its post-meeting statement to "effectively dovish bias." However, he believes that Powell and the Federal Reserve have not fully revealed their cards yet.

Gapen wrote in a report to clients on Friday, "The labor market has cooled, inflation has fallen faster than expected, and there has been no significant rise in unemployment, but we believe the Federal Reserve is not yet ready to send a strong signal about its intentions."

Gapen believes that the Federal Reserve will use this time to observe more data. Some data will be released in the days following the Federal Reserve meeting. Economic data keeps coming in

The non-farm payroll report for January will be released at 21:30 Beijing time on Friday. Economists expect a slight decrease in the number of new jobs added, while the unemployment rate is expected to remain unchanged at 3.7%. In addition, key updates on manufacturing and service sector activities, as well as the latest data on job vacancies, will be highlights in the economic field.

Despite recent headlines about layoffs, economists do not expect any signs of a widespread labor market slowdown to appear in the data.

The report is expected to show that the US economy added 175,000 non-farm jobs last month, with the unemployment rate rising slightly to 3.8%, according to the data. In December, the US economy added 216,000 jobs, with the unemployment rate remaining unchanged at 3.7%.

The team of economists at Wells Fargo, led by Jay Bryson, wrote in a weekly report, "Overall, the themes of supply improvement, cooling demand, and normalization of the overall labor market are likely to continue in January." "Although recent job growth has been strong, there are several signs that the pace will slow further in the coming months. Overall, the number of industries adding jobs each month is decreasing, while job vacancies and recruitment plans continue to decline."

Earnings reports from industry giants are pouring in

If the economic calendar itself is not enough to keep investors on alert, the quarterly earnings reports from the largest companies will also set the stage for their performance in a higher interest rate environment.

It is reported that five of the "Big Seven" technology stocks in the US stock market - Apple (AAPL.US), Alphabet (GOOGL.US), Microsoft (MSFT.US), Amazon (AMZN.US), and Meta (META.US) - will be the focus of this week's intensive quarterly reports. According to FactSet data, a total of 106 S&P 500 companies, including six Dow Jones components, are expected to release their earnings reports.

In addition to the large technology companies, earnings reports from AMD (AMD.US), Starbucks (SBUX.US), Pfizer (PFE.US), Chevron (CVX.US), ExxonMobil (XOM.US), and Boeing (BA.US) will also be the highlights of this week's earnings calendar.

How will the upcoming earnings reports drive the market narrative? According to FactSet's analysis on Friday, except for Tesla, the other "Big Seven" technology stocks are expected to be the top six contributors to the year-over-year earnings growth of the Pro UltraPro Short S&P 500, with a contribution of 53.7%. Excluding these six companies, the remaining 494 companies are expected to report a 10.5% decline in earnings.

This week's data and earnings previews:

Monday

Economic data: Dallas Fed Manufacturing Activity Index for January.

Earnings: Cleveland Cliffs (CLF.US), Philips (PHG.US), SoFi Technologies (SOFI.US), Whirlpool (WHR.US).

Tuesday

Economic data: S&P/Case-Shiller 20-City Home Price Index YoY for November, JOLTs Job Openings for December.

Earnings: Advanced Micro Devices (AMD.US), Google (GOOGL.US), Electronic Arts (EA.US), General Motors (GM.US), JetBlue Airways (JBLU.US), Juniper Networks (JNPR.US), Match Group (MTCH.US), Marathon Petroleum (MPC.US), Microsoft (MSFT.US), Pfizer (PFE.US), Starbucks (SBUX.US), UPS (UPS.US).

Wednesday

Economic data: ADP Nonfarm Employment Change for January, Quarterly Labor Cost Index QoQ for Q4, FOMC Interest Rate Decision for January 31.

Earnings: AFLAC (AFL.US), Boeing (BA.US), Hess (HES.US), Mastercard (MA.US), MetLife (MET.US), Novo Nordisk (NVO.US), Phillips 66 (PSX.US), Qualcomm (QCOM.US).

Thursday

Economic data: Challenger Job Cuts for January, Initial Jobless Claims for the week ending January 27, Markit Manufacturing PMI Final for January, ISM Manufacturing PMI for January.

Earnings: Apple (AAPL.US), Amazon (AMZN.US), Deckers Outdoor (DECK.US), Honeywell (HON.US), Meta (META.US), Merck (MRK.US), Royal Caribbean Cruises (RCL.US), Peloton Interactive (PTON.US), Sirius XM (SIRI.US), Skechers (SKX.US), Tractor Supply Company (TSCO.US), Clorox (CLX.US), United States Steel (X.US).

Friday

Economic data: Unemployment Rate for January, Nonfarm Payrolls for January, University of Michigan Consumer Sentiment Index Final for January, 1-Year Inflation Rate Expectations for January, Factory Orders MoM for December. Earnings Report: Chevron (CVX.US), ExxonMobil (XOM.US), Charter Communications (CHTR.US)