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The stock markets rallied for the third straight week as the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite have now surged by 3.9%, 0.72%, and 7.2%, respectively. However, analysts believe the rally will be short-lived, and the CEO of KKM Financial, Jeff Kilburg stated, “We’re having a more emotional reaction that expected. A lot of people got so pessimistic and we saw parabolic moves to kick off the year. Now, as expected, the markets aren’t going in a straight line.”
He added, “We are finding a way to continue to move and have higher lows. The higher lows put a little bit of confidence in the bulls. However, the technicals are still favoring the bears and selling rallies.”
One of the largest movers in the last week was Netflix which gained 8.5% following its impressive results. The streaming giant missed analyst earnings estimates, but it expanded its subscriber base at an accelerated pace compared to consensus forecasts.
There is a good chance for beaten-up tech stocks to regain momentum in the near term, especially if they post better-than-expected Q4 results. Shares of Alphabet (NASDAQ: GOOG) also surged over 5% after the company announced it would reduce its workforce by 12,000.
Let’s see what investors can expect from Wall Street in the next week.
Earnings season heats up
The upcoming week will see companies such as Microsoft (NASDAQ: MSFT), AT&T (NYSE: T), Tesla (NASDAQ: TSLA), Boeing (NYSE: BA), Intel (NASDAQ: INTC), Visa (NYSE: V), Mastercard (NYSE: MA), Chevron (NYSE: CVX), and American Express (NYSE: AXP) report Q3 earnings. Analysts expect S&P 500 to report a year-over-year decline of 3.9% for Q3, down from their previous decline of 4.1%, estimated at the start of 2023, according to data from FactSet.
Wall Street expects earnings to decline for three consecutive quarters. However, the bottom line for corporates might improve as we head into the second half of 2023.
Macroeconomic data remains crucial
The BEA or Bureau of Economic Analysis will release advance estimates of the gross domestic numbers for Q4 this Thursday. It will be interesting to see if the U.S. economy expanded in the last three months of 2022.
Economists project the U.S. economy to grow by 2.5% in Q4 on a seasonally-adjusted annual rate after a 3.2% expansion in Q3. The U.S. economy contracted in the first half of 2022, and GDP growth might decelerate in Q4 due to a slowdown in consumer spending, which contributes to 70% of the total U.S. GDP.
The BEA will also release the report for the PCE (Personal Consumption Expenditures) price index on Friday, which is a key indicator for inflation. The PCE is expected to gain 0.1% in December, down from the 0.4% gain in November. On an annual basis, price growth is expected to decelerate to 5.1% in December, compared to 5.5% in November and lower than the 7% high experienced in June 2022.
Core prices, excluding fuel and energy costs, are estimated to rise 4.4% year over year in December, compared to a 4.7% gain a month earlier.
There is a good chance for the Federal Reserve to reduce interest rate hikes at the upcoming FOMC meeting later this month. A report from Investopedia states, “It would also add to recent data showing consumer and producer prices decelerated in December, with the annual rate of consumer inflation falling to its lowest level in over a year.”
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