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After an extremely volatile period in 2022, the stock market has gained momentum in the last two months. In fact, equities is among the top-performing asset classes year-to-date, with the S&P 500 index rising 8% in 2023. Comparatively, high-yield corporate bonds and investment grade corporate bonds are up 3.1% and 1.9% respectively while oil prices are down over 2% this year.
Let’s see what stock market investors should expect from the S&P 500 in the upcoming week which is shortened due to the President’s day holiday on Monday.
Retail earnings in focus
Retail giants such as Home Depot (NYSE: HD) and Walmart (NYSE: WMT) will be releasing their quarterly reports this week. Investors will be watching closely to see if rising interest rates, higher commodity prices and inflation have negatively impacted consumer demand in recent months.
Walmart is among the largest retailers in the world and is forecast to report adjusted earnings per share of $1.52 in its third quarter of fiscal 2023 (ended in October). This forecast represents a decline of 6% in the company’s profit margins compared to the prior-year period. Comparatively, its sales might rise by 5% to $160 billion in Q3 of 2023.
Comparatively, analysts expect Home Depot’s sales to rise by 4.2% to $157.45 billion, while adjusted earnings are estimated to rise 1.9% to $16.65 per share in fiscal Q3 of 2023.
If we look at all the S&P 500 companies that have reported earnings for the previous quarter, 69% have exceeded Wall Street’s EPS estimates. But this is below the five-year and 10-year figure of 77% and 73% respectively. These companies have exceeded earnings projections by 1.1%. In the last five years, companies have outpaced earnings forecast by 8.6% on average, while in the last ten years, this number stands at 6.4%.
Home sales and housing market
Rising interest yields have increased mortgage rates significantly in the last year, leading to a drastic fall in demand for home loans. The rising cost of debt is likely to drive home sales lower in 2023. We will soon be receiving housing updates as data for existing home sales for January will release this week.
Existing home sales for January are projected at 4.1 million units, well below the prior year figure of 6.49 million. However, it will be higher than the 4.02 million units sold in December, marking the first sequential increase in 12 months.
New home sales might touch 620,000 in January, compared to 616,000 in December. A report from Investopedia states, “Home sales were likely boosted last month by falling mortgage rates, which fell from 20-year highs hit late last year. The average rate on a 30-year fixed-rate mortgage fell to 6.09% in early February, after peaking above 7% in late October.”
Inflation data key to interest rates
The primary reason why the Federal Reserve has increased interest rates is to bring inflation under control. One north-star metric the central banks follows is the Personal Consumer Expenditures (PCE) price index. Published by the Bureau of Economic Analysis, the PCE price index for January is expected to rise 0.3% in January, much higher than the 0.1% gain in the previous two months. It also means prices have surged 4.8% year over year, compared to the 5% rise in December.
Moreover, core prices is forecast to have risen 0.5% for January, up from a 0.3% uptick in December. Core prices excludes costs for energy and food and might gain 4.3% for January.
Related: Wall Street Slide as Warnings Rise About Consumer Caution Amid Interest Rate Hikes