Crucial earnings reports set to shape market momentum this week

This week’s market dynamics are set to be heavily influenced by a wave of corporate earnings reports, putting the recent market rally to the test. As reported by various financial sources, more than 100 S&P 500 companies are slated to release their earnings reports. 

This surge in corporate financial disclosures is expected to be a critical factor in gauging the resilience and sustainability of the ongoing market rally.

Earnings reports could fuel continued rally

The upcoming earnings season follows strong U.S. Q4 GDP growth, falling inflation rates, and positive macroeconomic indicators highlighted in the Weekly Market Insights. Market analysts anticipate that the performance of major companies, including tech giants like Apple and Alphabet, could significantly impact investor sentiment and influence the trajectory of the broader market.

Stocks are back at record highs, with the S&P 500 closing Friday at 4,959, their highest level ever. Despite a volatile trading week, all three major indexes saw weekly increases.

Stocks initially fell after disappointing tech results from Microsoft (MSFT) and Alphabet (GOOG, GOOGL), then they fell further on Wednesday when Fed Chair Jerome Powell stated that an interest rate cut in March is not the “base case.”

However, solid profits from Meta (META) and Amazon (AMZN) and a better-than-expected January jobs report pushed equities higher.

The S&P 500 (^GSPC) and Dow Jones Industrial Average (^DJI) rose more than 1% this week, while the Nasdaq Composite (^IXIC) gained less than 1%.

A flood of corporate quarterly reports, including those from Eli Lilly (LLY), Disney (DIS), Spotify (SPOT), McDonald’s (MCD), Chipotle (CMG), and Pepsi (PEP), will meet investors in the next week, amid a light economic timetable.

Fed rate hike talks continue to affect the market

In an interview with “60 Minutes” that aired Sunday evening, Federal Reserve Chair Jerome Powell poured cold water on investor hopes for a March interest rate decrease, saying the central bank may be “prudent” in selecting when to cut its benchmark interest rate.

That emphasized Powell’s point made during his press conference following the January Fed meeting when he stated that the central bank needs “greater confidence” in the path of reduced inflation before decreasing interest rates.

Economists say the January employment report, which showed the US economy added 353,000 jobs in the month, strengthens the Fed’s position that it can wait to decrease interest rates without sending the economy into recession. However, the report raised fears about inflation reaccelerating, with wages rising 4.6% in the month, the fastest rate of growth since July 2023.

According to the CME FedWatch Tool, investors now estimate a 15% possibility of an interest rate drop at the March meeting. There was an almost 40% possibility on Thursday compared to nearly 80% a month earlier.

According to the most recent FactSet statistics, earnings are predicted to increase by 1.6% in the fourth quarter. Notably, first-quarter projections have also been kept under control. Analysts have reduced first-quarter profit predictions by 1.4% over the last month, which is less than the five-year average of 2.1%.

Market data release dates

On Monday – Earnings: Allegiant (ALGT), Caterpillar (CAT), Chegg (CHGG), Estee Lauder (EL), McDonald’s (MCD), Palantir (PLTR), Tyson.

Economic news: S&P Global US services PMI, January final (52.9 expected, 52.9 prior), S&P Global composite PMI, January final (52.3 expected), ISM services index, January (52.0 expected, 50.5 prior).

On Tuesday – Earnings: Amgen (AMGN), Chipotle (CMG), Eli Lilly (LLY), Spotify (SPOT), Fiserv (FI), Ford (F), Hertz (HTZ), BP (BP), Snap (SNAP), Toyota (TM).

On Wednesday – Earnings: Alibaba (BABA), Arm Holdings (ARM), CVS (CVS), Mattel (MAT), Paycom (PAYC), Paypal (PYPL), Roblox (RBLX), Uber (UBER), Walt Disney (DIS), and Wynn Resorts.

Economic news: MBA Mortgage Applications, Feb. 2 (-7.2% previous), consumer credit, December ($16.5 billion forecast, $23.75 billion previously).

On Thursday – Earnings: Affirm (AFRM), Aurora Cannabis (ACB), Bill.com (BILL), ConocoPhillips (COP), Expedia (EXPE), Hershey (HSY), Pinterest (PINS), Spirit (SAVE), and Take-Two Interactive.

Economic news: Initial unemployment claims, Feb. 3 (215,000 expected, 224,000 before), wholesale inventories month-over-month, December final (0.4% prior), wholesale trade sales month over month, December (0% prior).

Lastly, Friday – Earnings: Canopy Growth (CGC), Pepsi (PEP).

Economic news: Revisions to the Consumer Price Index