This week ahead || Jan 19th - Jan 23rd 2024
Here's your news for the upcoming week ahead
Why the Fed now finds itself on a collision course with the 2024 election
Fed Chair Jay Powell faces a challenging political conundrum as the year 2024 progresses. Initially, markets anticipated a rate-cutting campaign to begin in March, but positive surprises in inflation and the economy have shifted expectations. Recent economic data, including higher-than-expected inflation readings and strong job growth, suggest a delay in rate cuts until the summer, aligning with the third quarter, according to Atlanta Fed President Raphael Bostic. However, this timeline puts Powell on a direct collision course with the 2024 political season, where political figures on both sides of the aisle are ready to influence his decisions. Former President Donald Trump has openly criticized Powell, suggesting he may be trying to lower interest rates to benefit Democrats. Powell's challenge lies in maintaining the Fed's credibility while navigating political pressures. Despite political scrutiny, Powell has vowed to remain apolitical in his decision-making, leveraging his bipartisan record at the Fed. However, with mounting pressures from various sides, including progressives like Elizabeth Warren calling for rate cuts, Powell faces a difficult year ahead.
Too early to call impact of layoffs on macro economy
Recent record highs in the stock market, particularly the S&P 500, seem at odds with reports of layoffs by various companies. However, it's essential to consider the broader economic context before jumping to conclusions. While layoffs make headlines, they are a regular part of the economy, representing just a fraction of total employment. Moreover, many laid-off individuals find new jobs relatively quickly. Despite signs of economic cooling, such as declining consumer spending and industrial activity, the overall economic outlook remains positive. While risks like tighter monetary policy exist, the financial health of consumers and businesses remains strong. Long-term investors should maintain perspective amid short-term fluctuations, recognizing that market downturns are part of the investing journey, and the long-term outlook for stocks remains positive.
Earnings week ahead: Nvidia poses pivotal test to rally amid sky-high expectations
NVIDIA (NVDA):
- Set to announce Q4 earnings on Feb 21.
- Analysts forecast EPS of $4.63 and revenues of $20.52 billion.
- Stock price has surged 46% this year, reaching a record high.
- Loop Capital initiated coverage with a Buy rating and $1,200 price target.
- Oppenheimer raised its price target to $850, anticipating another earnings outperformance.
- Nvidia has been a key component of the "Beat the S&P 500" strategy, yielding a 78% return since Nov 2023.
Walmart (WMT):
- Earnings for Q4/24 scheduled on Feb 20.
- Expected EPS of $1.65 and revenues of $169.3B.
- BofA Securities maintains a Buy rating with a $190.00 price target, foreseeing potential sales upside.
- Evercore ISI added Walmart to its Tactical Underperform list, citing potential near-term downside.
- ProTips highlight Walmart's strengths, including consistent dividend raises and positive earnings revisions.
Rivian Automotive (RIVN):
- Q4/23 earnings expected on Feb 21.
- Analysts anticipate an EPS of ($1.32) on revenues of $1.26B.
- Downgraded by Barclays from Overweight to Equalweight with a lowered price target of $16.00.
- Concerns raised about demand pressure and the need for capital raises.
Palo Alto Networks (PANW):
- Reporting Q2/24 earnings on Feb 20.
- Street estimates at $1.30 for EPS and $1.97B for revenues.
- Jefferies, JPMorgan, and Wells Fargo raised their price targets on Palo Alto Networks ahead of the announcement, citing the company's ability to meet elevated expectations.
Top 5 things to watch in markets in the week ahead
Fed Minutes:
Wednesday's release of the Federal Reserve's January meeting minutes will provide insights into policymakers' discussions on inflation and interest rates. Market participants await clues regarding potential rate cuts, with the Fed signaling a cautious approach amid strong economic data.
Nvidia Earnings:
Nvidia's earnings report on Wednesday will be closely watched, given its prominent role in AI technology. Positive updates could bolster market sentiment, while disappointments may impact broader market trends, particularly in the tech sector.
Retail Earnings:
The earnings season for major U.S. retailers kicks off with Walmart's report on Tuesday. Analysts anticipate a cautious outlook for 2024 amidst inflationary pressures. Stronger profitability and sales are expected, driven by factors such as lower supply chain costs.
PMI Data:
Thursday's release of PMI data globally will offer insights into economic conditions beyond the U.S. Despite concerns over a global recession, data from regions like the euro zone suggests resilience. Chinese markets returning from the Lunar New Year holiday will also be monitored for signs of government intervention to stabilize the stock market.
China Markets Return:
Following the Lunar New Year holiday, Chinese markets reopen on Monday. Investors await government actions to address stock market volatility and monitor data on new home prices, providing indicators of the property sector's health amid economic challenges.
