January 28, 2023

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What do you know this week

a Stock market rally to start 2023 Investors will be put to the test next week when investors face a long-awaited inflation reading and the start of the fourth quarter earnings season, which will be led by major banks.

Thursday morning will release the Consumer Price Index for December, a release that is likely to place bets on whether the Federal Reserve will raise interest rates by 0.25% or 0.50% at the beginning of next month.

Economists expect core CPI to rise 6.6% year-on-year in December, a A downward shift from the 7.1% increase seen in NovemberAccording to Bloomberg data. On a monthly basis, the CPI is likely to remain flat.

Core CPI, which removes the volatile food and energy components from the report and is closely followed by the Fed, is also expected to have risen at a slower pace last month, coming in at 5.7% after a 6% increase in November. During the previous month, core CPI is expected to have increased by 0.3% after advancing by 0.2% in November.

Policymakers are watching “core” inflation closely due to its nuanced view of key inputs such as housing, while the headline CPI number has moved largely in tandem with volatile energy prices this year.

JPMorgan (JPM), the largest consumer bank in the United States, will also report quarterly financial results alongside industry peers Citigroup (c), Bank of America (Buck), and Wells Fargo (WFC) on Friday morning as the fourth quarter earnings season begins.

Banking giants on Wall Street – that have Beware of the state of the economyI have seen Massive declines in closing deals revenue and even They began to reduce their workforce – The street is expected to provide disappointing results.

Another “encouraging” jobs report

On Friday, US stocks It rose after the last monthly jobs report show up Nonfarm payrolls increased by 223,000 in December As the unemployment rate fell to 3.5%.

While these numbers indicate an imbalance between labor supply and demand is still within reach, investors Celebrate refrigeration wage growth as a sign The Fed may reduce its ambitions to raise interest rates.

Over the course of the week, the S&P 500 and Dow Jones Industrial Average were up nearly 1.5% while the heavy Nasdaq Composite Index was up 1%. The three major averages were up more than 2% on Friday.

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“This is an encouraging Fed jobs report showing that a narrow path to a soft landing remains a possibility as wages cool without the need for widespread job destruction,” Josh Gamener, investment strategist at ClearBridge Investments, said in a note on Friday. “This edition on its own clearly does not support an increase of 25 or 50 basis points at the next Fed meeting in February, and as a result, Thursday’s CPI release could be crucial to that decision.”

The Federal Open Market Committee (FOMC), the group of Federal Reserve officials who vote on policy changes, is Scheduled for January 31st – February 1st And to provide the first rate increase for 2023 and the eighth of the current hiking cycle. Last month, the Fed Raising interest rates by 50 basis pointsbringing the total increases in its standard policy rate to 4.25% in 2022.

Friday’s jobs report adds to a series of economic releases that continue to set equal odds for a rate hike of 25 or 50 basis points the next day, said Alexandra Wilson Elizondo, head of retail multi-asset investment at Goldman Sachs Asset Management. Meeting. In other words, the suspicion remains.

“the [December jobs] “The report is likely to add to the growing narrative of an anti-inflationary environment intersected by a strong economy, and thus a soft landing,” Wilson Elizondo said in emailed comments. However, our situation remains off-limits until 2023.”

Wilson Elizondo added: “It is difficult to see how risky assets can compete with the roughly 5% yields in money market funds until more clarity is provided on the mix of inflation and growth. We expect the Fed to remain constrained until there is evidence It is clear that the tightening in the labor market is constantly improving.

WASHINGTON, DC – SEPTEMBER 21: US Federal Reserve Chairman Jerome Powell speaks during a press conference. (Photo by Drew Angerer/Getty Images)

Bank profits lead the way

JPMorgan, Citigroup, Bank of America, and Wells Fargo, along with asset management group BlackRock (BLK), they are all set to report results in a surprise flurry before the market opens on Friday.

Banks typically benefit from central bank policy tightening, as higher interest rates boost net interest income — or the difference between a bank’s earnings on its lending activities and the interest it pays to depositors — and net interest margins. However, tough market conditions that have dealt a blow to deal making, a primary driver of profit, are poised to offset other aspects of their business.

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“It is unlikely that we will see any attractiveness in investment banking, as underwriting in equity and debt, as well as the M&A markets, are expected to disappoint,” Kenneth Lyon, director of research at CFRA Research, said in a note.

Leon also warned of “significant drops” in stock underwriting, including IPOs. to me Report on the IPO market last month From EY, 2022 saw just 1,333 initial public offerings worldwide based on data through December 14, with these IPOs raising a total of $179.5 billion – a 45% drop in listings and 61% fewer dollars raised compared to in 2021.

Another notable component of the banks’ earnings will be any insights they offer credit card and savings account balances on the health of US consumers.

Last week’s data from JPMorgan Asset Management, the bank’s investment management arm, estimated “excess savings” for American households now. It stands at $900 billion, down from a peak of $2.1 trillion in early 2021 and about $1.9 trillion at the beginning of last year. The decline shows that inflation has effectively wiped out half of the savings Americans have accumulated since the pandemic began.

UNITED STATES - SEPTEMBER 22: JPMorgan Chase CEO Jamie Dimon arrives for the Senate Banking, Housing, and Urban Affairs Committee hearing entitled Annual Oversight of the United Nations' Largest Banks, at the Hart Building on Thursday, September 22, 2022. / CQ-Roll Call Inc. via Getty Images)

US – SEPTEMBER 22: Jamie Dimon, CEO of JPMorgan Chase, arrives at the Senate Banking Committee hearing. (Tom Williams/CQ-Roll Call, Inc via Getty Images)

Even JPMorgan CEO Jamie Dimon warned against it in a recent interview Inflation may push the US economy into recession this year.

“Inflation is eroding everything I just said,” Dimon noted, referring to consumer budgets that have held up for the time being, “And that trillion and a half dollars will run out sometime in the middle of next year.”

Elsewhere on the calendar, investors will also get a measure of real average hourly earnings, reads on import and export prices, and a scan of consumer confidence from the closely watched University of Michigan survey.

Earnings from Bed Bath & Beyond (BBBY), which said it was facing bankruptcy last weekDelta Airlines (DAL) and UnitedHealth (United nations) are also notable reports on tap.

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Economic calendar

Monday: consumer balanceNovember ($25.000 billion projected, $27.078 billion over the previous month)

Tuesday: NFIB Small Business OptimismDecember (expected 91.4, 91.9 during the previous month); Wholesale business saleson a monthly basis, November (0.4% over the previous month); wholesale stockon a monthly basis, final November (1.0% expected, 1.0% prior month)

Wednesday: MBA Mortgage Applicationsthe week ending January 6 (-10.3% over the previous week)

Thursday: Consumer price indexon a monthly basis, December (0.0% expected, 0.1% over the previous month); Consumer price index excluding food and energyon a monthly basis, December (0.3% expected, 0.2% over the previous month); Consumer price indexyear-on-year, December (6.6% expected, 7.1% prior month); Consumer price index excluding food and energyon an annual basis, December (5.7% expected, 6.0% over the previous month); Real average hourly earningsyear-on-year, December (-1.9% over the previous month, revised to -2.1%); Real average weekly earningsyear-over-year, December (-3.0% over the prior month, revised down to -3.3%); Unemployment claims ratesfor the week ending January 7 (expected 214,000, 204,000 over the previous week); Continuing claimsfor the week ending December 31 (1.694 million over the previous week)

Friday: Import price indexyear-on-year, December (2.2% expected, 2.7% yoy prior month); Import price indexon a monthly basis, December (-0.7% expected, -0.3% over the previous month); The import price index, excluding petroleumon a monthly basis, December (-0.3% expected, -0.3% over the previous month); Export price indexyear-over-year, December (6.3% over the previous month); Export price indexon a monthly basis, December (-0.7% expected, -0.3% over the previous month); University of Michigan sentimentsPreliminary January (expected 60.5, previous read 59.7)

Earnings calendar

Monday: Sparkling brands (AYI), AZZ (AZZ), commercial minerals (CMC), Price Smart (Pacific Time), Tilray (TLRY), WD-40 (WDFC)

Tuesday: Albertson (ACI), bed bath behind (BBBY)

Wednesday: KB major (KBH), Shaw Telecom (SJR)

Thursday: Taiwanese semiconductor industry (TSM),

Friday: Delta Airlines (DAL), JPMorgan (JPM), Citigroup (c), American bank (Buck), Black stone (BLK), First Republic Bank (FRC), Wells Fargo (WFC), United Health (United nations)

Alexandra Semenova is a correspondent at Yahoo Finance. Follow her on Twitter @employee

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