Because this is easily the craziest week since the calendar hit 2023.
The key question that could be answered soon: Is the following what is actually taking place?
We’ve got the Fed’s first meeting of the year, earnings reports from 4 of the Top 5 largest companies in the world (AAPL, AMZN, GOOG, META), jobs reports from the BLS and ADP, escalating wartime tensions, and much more.
The results of this week are likely to give us some more clarity if the market-wide worries are validated, or if bulls are truly in control.
Reminder:
We’re publishing an incredible deep dive update on the economy, the stock market, as well as sharing a few stock ideas tomorrow. Stay tuned!
Guidance Matters:
Remember — even if a company’s results are lackluster, stocks can still soar based on forward-looking guidance.
The difference between operational issues that are going to be here for another 6 months versus 9 or 12 months can often be the difference between massive swings to the upside or downside.
When expectations have been lowered and earnings revisions pile in toward the downside — GUIDANCE during recessionary times is often the most important part.
Let’s see who’s in the queue.
Key Earnings Announcements:
The tech-heavy Nasdaq-100 is about to be put to the test.
However… the Nasdaq-100 was still up +4.7% last week — nearly double the return of the broader S&P 500.
It’s now up to the next set of heavyweights to show us under the hood. Below are so thoughts in anticipation of the reports:
Alphabet (GOOG): “We expect continued headwinds in Q4 across both brand and direct response advertisers with direct response impacted in part by ad privacy headwinds…
For 2023, we are modeling 4% revenue growth with expected recovery to mid-high single digits in the second half.” — Raymond James
Amazon (AMZN): “One important takeaway is that most of the headwinds facing Amazon are cyclical (temporary) as opposed to more troubling problems such as declining market share.
The long-term growth catalysts for Amazon are still intact. E-commerce makes up just 15% of U.S. retail sales today, and (excluding the pandemic) this has been steadily rising for over a decade.
Plus, Amazon’s e-commerce presence has quite a bit of room to grow internationally, especially in places where e-commerce adoption is still in the earlier stages.” — The Motley Fool
Apple (AAPL):“The tone on the call will be crucial to understand the underlying demand trajectory given the [December quarter] was significantly supply constrained for the higher end Pro models of iPhones… and leads us to conclude that demand could be softer than expected in [the first-half of 2023].” — Bank of America
Meta (META): “With sales up 34% per annum over the past five years, EPS turning in a 32% CAGR and generating an attractive operating margin, we believe Meta Platforms should trade at a premium to the market and tech sector in the long run; however, we expect the current macroeconomic and geopolitical environment will weigh on advertising spending in the coming quarters.” — Monness, Crespi, Hardt, & Co.
We’ll also be looking to see the current state of the cloud infrastructure development for both Amazon and Google — especially after Microsoft Cloud drove the tech giant’s revenue in its report last week.
However, MSFT clearly signaled that the cloud business is expected to slow (as mentioned above).
Signals are mixed and we want more data.
Investor Events / Global Affairs:
Spain’s inflation catches central banks by surprise, U.S. Auto Sales have mixed expectations, and the Russia / Ukraine war is causing more alliance-building to take place.
Spain’s Inflation Jump Causes Concern
Early Monday morning, we learned that Spain’s inflation took a turn toward the upside after 5 consecutive months of slowing price growth.
Spanish consumer prices rose by +5.8% year-over-year — blowing through median estimates of +4.8%.
This move came ahead of week that will see the United States Federal Reserve (FOMC), the European Central Bank (ECB), and the Bank of England (BoE) make policy decisions.
Chaotic Week for Policymakers:
Does Spain’s inflation directly impact ours?
Not necessarily, but this was an unwelcome start to a week in which major decision-makers are waving their wand. The ECB and BoE are expected to lift rates by half a percentage point, to their highest levels since fall of 2008.
January sales are expected to fall almost 20% month over month, largely due to three fewer selling days than December and the usual post-holiday drop in activity.
Tickers to keep an eye on: GM, HMC, STLA, TM, TSLA
“After a slow December, a return to ‘normal’ would be welcome. With inventories improving, and more fleet activity likely, we are expecting an increase in January new-vehicle sales activity.
Though some dealer lots across the country have ample inventory, some Asian brands continue to have extremely limited availability.
One of the key questions for the market this year is whether some brands – particularly American ones – will be forced to increase incentives to keep supply from getting too high.”— Charlie Chesbrough, Senior Economist @ Cox Automotive
This came just days after the U.S. conducted its largest military exercise ever with Israel and widespread calls for Iran to stop supplying Russia with weaponry.
To date, South Korea has sent materials like bulletproof vests, gas masks, and medical supplies to Ukraine. However, they’ve refused to send lethal weapons — as it breaks their own law of not arming countries engaged in conflicts.
NATO’s Stoltenberg was on a two-day visit to Seoul, South Korea and recently left for Tokyo, Japan. Leadership figures in Pyongyang, North Korea are calling Stoltenberg’s visits “a prelude to confrontation and war.”
Alliances Forming:
The numbers are staggering that have been sent to Ukraine (2022 data of shipments from the U.S. shown above).
It’s a complex topic and the loss of life is devastating, but the clearly emerging visuals of alliances forming is pretty dang frightening.
“The U.S. is trying to persuade Mozambique, an African country long friendly to Moscow, to use its new seat on the United Nations Security Council to condemn Russia’s invasion of Ukraine.
The American ambassador to the U.N., Linda Thomas-Greenfield, visited the southern African country this week, telling the government that neutrality wasn’t an option when a big power invades a smaller neighbor in violation of a U.N. Charter that Security Council members are bound to uphold.”
Things feel like they’ve shifted toward a ‘you’re with us or you’re against us’ mentality.
We’re very interested to see how this unfolds, and we’re hoping it’s more peaceful than expected.
Major Economic Events:
Jerome Powell is ready to hop back in front of the camera, and the immovable Unemployment Rate keeps gaining more attention.
There is broad-based weakening taking place in the manufacturing sector. The ISM Manufacturing Index will add more color this week. Source: Prometheus Research
Monday (1/30): N/A
Tuesday (1/31): Chicago Business Barometer, Consumer Confidence Index, FHFA Home Price Index, Employment Cost Index, Rental Vacancy Rate
Wednesday (2/1): ADP Employment Report, Construction Spending, FOMC Rate Announcement (Jerome Powell Press Conference), ISM Manufacturing Index, Motor Vehicle Sales
Thursday (2/2): Factory Orders, Productivity, Unit Labor Costs
Friday (2/3): Average Hourly Earnings, ISM Services Index, Labor Force Participation Rate, Nonfarm Payrolls, Unemployment Rate
What We’re Watching:
Fed Rate Decision:
The three Fed Funds forecasts shown above are based on the following:
FOMC — The Fed’s 12/15/2022 median year-end Fed Fund forecasts
FF Futures — Market implied rates based on Fed Funds futures
FF Historical — Based on the last four recessions. On average, Fed Funds fell by 4.76% over 1.5 years, or 0.29% monthly.
In other words — the above chart shows how different projections are when compared to the Fed’s words throughout Q4’22.
Jerome Powell’s speech on Wednesday should provide us with clarity if the market ‘calling their bluff’ has been correct.
Key thing to look out for — will things be “higher for longer?” The new base case from the market is two more 25 bps raises and rates starting to be cut around summertime.
Will anything more severe than that cause investors to worry?
Jobs Reports:
The above graph from Morgan Stanley (MS) shows the pretty well-correlated relationship between S&P forward EPS and the unemployment rate.
This week, we get a full look at the employment situation from both the Bureau of Labor Statistics (BLS) and ADP’s jobs report.
Currently, the unemployment rate is expected to rise marginally from 3.5% to 3.6%. Everyone is watching to see if this seemingly immovable number will ever rise.
Events-Driven Winners:
Which stocks moved the most last week.
Our friends at LevelFields scrub through thousands of data points each week to determine how events impact stock prices.
If you weren’t aware, Warren Buffett’s Berkshire Hathaway (BRK.A) is the largest shareholder of American Express stock.
This Top 10 list of heavy hitting shareholders was pleased to see a +15% dividend increase last week — and I’m absolutely looking further into American Express as a position in the dividend growth portfolio:
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Disclaimer: This is not financial advice or recommendation for any investment. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.
