Wall Street Ahead: Inflation, consumer data, earnings to watch out next week
However, Investors are optimistic as they kick off 2024, fostering the potential for a turbulent period in U.S. stocks if certain expectations fall short, according to a report by Reuters. Despite a somewhat uncertain beginning to the year, the S&P 500 is merely approximately 2% below its recent all-time high.
The majority of investors continue to hold an optimistic outlook, encompassing positive sentiments toward the U.S. economy, corporate profits, and the Federal Reserve’s course of monetary policy.
Inflation
The prevailing narrative of robust growth and a gradual easing of inflation, which contributed to the S&P 500’s impressive 24% gain last year, has now become the widely accepted perspective among investors.
According to the most recent survey from BofA Global Research, published last month, 66% of fund managers expressed confidence in the economy experiencing a soft landing in 2024. BofA’s data revealed that only 15% of fund managers anticipated a recession in the coming 12 months, marking a significant shift from the previous year when 68% of investors foresaw an impending recession.
Also read: FPIs continue investing spree, infuse ₹4,773 crore in first week of January; Details here
Consumer Price Data
Investor optimism faces a crucial test in the upcoming release of consumer price data next week, determining whether recent confidence in diminishing inflation might have been premature. The outlook for a slowing economy, potentially paving the way for Federal Reserve rate cuts, suffered a setback on Friday. This was prompted by job data revealing that employers not only hired more workers than anticipated in December but also increased wages at a robust pace.
The S&P 500 experienced a notable decline of 1.54% this week, marking the most significant weekly drop since late October.
Also read: Expert view: Here are key risks market will have to address in 2024
Earnings season
Major banks including JPMorgan Chase and Citigroup are set to launch the upcoming earnings season, thereby putting to the test the heightened anticipations for corporate profits. Analysts, as per LSEG data, anticipate a notable 11% increase in S&P 500 earnings for 2024, a significant leap from the 3% growth witnessed in 2023.
The pressure to meet these elevated earnings targets might be more pronounced compared to the previous year, given the surge in the market’s overall valuation. According to data from LSEG Datastream, as quoted in a Reuters report, the S&P 500 currently trades at a forward price-to-earnings ratio of 19.5, contrasting with approximately 17 times at the commencement of 2023.
Also read: Weekend Wrap: From Vodafone Idea to Yes Bank, top news and market movers this week
“We don’t expect multiples to expand significantly from here because valuations are stretched a bit, so it’s going to come down to where the earnings come in,” said James Ragan, director of wealth management research at D.A. Davidson was quoted as saying by Reuters.
Fed rate cut
Looking ahead, investors will closely analyze the communication from the Federal Reserve following its policy meeting on January 30-31. Current market expectations suggest that the central bank will maintain interest rates at their current level this month, and anticipations of a rate cut in March have diminished. According to CME’s FedWatch Tool, as of Friday, the futures markets indicated approximately a 62% likelihood of a 25 basis points rate cut by the Fed in March, down from around 73% a week ago.
Despite these considerations, historical trends reveal that stocks have generally responded positively to rate cuts. Over the last 12 easing cycles since 1970, the S&P 500 has typically experienced a rally lasting six or seven months after the initial rate cut, with an average gain of approximately 12%, as reported by Ned Davis Research.
Also read: Nomura predicts 12% increase in Nifty this year; what will drive the rally?
US Stocks
In terms of weekly results, both the S&P 500 and Nasdaq Composite concluded the initial week of 2024 with significant declines. The S&P 500 marked its most challenging weekly performance since late October, while the Nasdaq experienced its most substantial weekly setback since late September.
Each of the three benchmarks experienced its initial weekly downturn in ten weeks: the S&P 500 (.SPX) witnessed a 1.54% decline, the Nasdaq Composite (.IXIC) slumped by 3.26%, and the Dow Jones Industrial Average (.DJI) saw a 0.59% dip, on Friday.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it’s all here, just a click away! Login Now!
Download The Mint News App to get Daily Market Updates.
Published: 07 Jan 2024, 04:25 PM IST
