Market Pulse

Market Pulse

January 24, 2022

In focus

Three top stories are likely to command the attention of market participants this week.

  • Earnings Season –This week kicks off the heart of earnings season. 33% of S&P 500 companies will report, led by technology bellwethers Microsoft and Apple. Though only 13% of S&P 500 companies have reported so far, early trends are emerging. First, trailing four quarter earnings are likely to reflect continued solid growth of above 20%; however, the low base effect will drop off starting with Q1 2022 earnings. Second, in recent quarters, the rate of earnings revisions from the beginning of earnings season has edged higher by 8%-10%; however, Q4 2021 is tracking lower, with revisions of around 1%-2%. Third, companies that are lowering forward guidance now outnumber those raising forward guidance. We expect 2022 to be a year where equity returns somewhat mirror earnings growth in the mid-high single digit range, with markets periodically resetting but ultimately trend higher.
  • FOMC Meeting –This week’s meeting of the Federal Reserve (Fed) will likely focus on messaging around a rate hike as early as March or even an eventual pivot toward balance sheet reduction as U.S. Treasury maturities roll off. Near-term omicron-induced supply chain disruption and stickier wage-related inflation trends will be top-of-mind.
  • Geopolitical Pressure–Russia-Ukraine tensions and Chinese air exercises in Taiwan’s air space pose a tandem challenge for U.S. officials this week. New developments around each event could add to the list of sentiment-related headwinds.

A look back

  • Global equities dropped -4.2% last week, led by the U.S. market’s -5.7% decline. All 11 S&P 500 sectors were lower, with weakness concentrated in growth sectors and relative strength reflected in the more defensive sectors like consumer staples and utilities.
  • 10-year U.S. Treasury yields have consolidated around 1.75% in recent trading sessions. 2-year yields are hovering near 1%, anticipating a spring rate lift-off.
  • Omicron’s impact on supply chains and labor disruption is finding its way into company earnings transcripts as infection rates remain elevated.

A look ahead

  • 33% of S&P 500 earnings will report this week, dominated by technology companies, and headlined by Microsoft and Apple.
  • This week’s Fed meeting is in the spotlight, with a few themes weighing on investors’ minds, including the timing and number of potential rate hikes as well as eventual balance sheet reduction.
  • Economic releases: Q4 advance GDP, MarkitU.S. Manufacturing and Services data, Personal Consumption Expenditures, Conference Board Consumer Confidence, and FOMC rate decision.

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