Equity and bond markets each took a breather, finishing the week lower after January produced strong gains. With few key economic releases, investors digested comments from Federal Reserve (Fed) officials in the wake of the previous Friday’s hotter-than-expected payrolls report. Corporate earnings also demanded attention, as results have been mixed, with roughly two thirds of S&P 500 companies now having reported Q4 results.
Despite some bright spots, this earnings season has largely left investors wanting more. Among S&P 500 constituents that have reported, 68% have beaten consensus expectations, below both 1-year (76%) and 5-year (77%) averages. At the same time, analysts have been cutting first quarter earnings estimates amid economic uncertainty for the rest of the year. However, the market has punished firms less for earnings misses than in past quarters, while rewarding positive surprises at an above-trend rate. Increased bullish sentiment has likely contributed to valuations largely holding up despite underwhelming earnings. This positive sentiment will be tested by several key economic releases this week.
This week’s data will provide a test as to whether any potential good news is treated as good news, or if it stokes fears of higher interest rates. January Retail Sales, Consumer Price Index (CPI), and Producer Price Index (PPI) reports are highly anticipated.
A look back
- Stocks fell broadly last week, with global equities and the S&P 500 each falling just over -1.0%, while emerging markets dipped -2.4%.
- Treasury yields rose, and the slope of the curve ended the week largely unchanged. The 2-/10-year curve reached historic levels of inversion mid-week, briefly touching -0.86%.
- Consumer sentiment came in ahead of expectations, showing increased optimism surrounding the path of the economy.
A look ahead
- This week brings key inflation data, with both January CPI and PPI being released.
- Companies will continue to report earnings, with 61 S&P 500 firms set to release fourth quarter results this week. Utilities, the worst performing sector year to date, will take the earnings spotlight.
- Economic Releases: CPI, Retail Sales, Business Inventories, Industrial Production, Housing Starts, PPI, Leading Index.
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