Hang onto your hats: Monster week with Fed, Facebook, jobs

If you’re an investor, you might want to be sure you can grab onto support this week. 

This week is shaping up as one of the most dramatic weeks for markets in some time. 

Related: Fed inflation gauge dips below 3%, but spending jump eases bets on interest-rate cuts

It’s one of those weeks where good news can ignite rallies. And bad news? You just want to get out of the way.

Just ask investors in electric-vehicle maker Tesla  (TSLA) – Get Free Report.  They were stunned when an earnings report and analyst meeting on Jan. 24 produced the market equivalent of a Bronx cheer.

Tesla shares fell 12% the next day and ended down 13.6% for the week.The company has lost a quarter of its market value in less than a month, and CEO Elon Musk lost his title of world’s richest man.

Data, more data and still more data

What’s on tap in the week ahead includes:

The first Federal Reserve meeting of the year.A jobs report.Earnings reports from no fewer than 386 publicly-traded U.S. companies, including four of the most valuable.

 And more to consider than just those three. 

When is the first interest-rate cut  coming?

The Federal Reserve’s rate-making body meets Tuesday and will end Wednesday with a decision where to leave its key federal funds rate, now at 5.25% to 5.5%. 

More on the economy and markets 

Big-Tech titans Apple and Microsoft top huge earnings week on Wall StreetBond markets’ reaction to key data could be great for stocksIntel plunges as AI outlook frustrates analysts

Fed Chairman Jerome Powell has basically said the central doesn’t need to raise rates any more after 11 rate hikes starting in 2022. And lower interest rates are the logical next step.

Depending who you are or what business you’re in, rate cuts are a big deal. And sooner is better than later. 

Mortgage rates started to come down after hitting 8% in November. That’s generated a bit more sales activity but need to fall further. Rates hit 6.7% in mid-December and have drifted up to 6.9% recently, according to Mortgage News Daily.

Also interested: start-up companies, venture capitalists and investors in startups. The cost of capital is a critical element to success. As important: a vibrant market for startups and IPOs.

The IPO market itself is still very soft. BrightSpring Health Services, backed by private-equity giant KKR Inc., went public at $13 on Thursday, below the expected range of $15 to $18, then fell to $11 on Friday. 

The Fed may not cut its Fed funds rate this week because officials want to be sure lower inflation holds. 

Powell, however, is likely to offer hints at his press conference after the two-day meeting ends. 

Many Fed watchers see the first rate cut coming in May. That would be followed by a series of gradual cuts that bring the rate down to around 4% by December.

The NYSE trading floor

Getty Images

The biggest week for earnings

Of the 386-plus companies reporting, 106 are members of the S&P 500 Index, including six that are members of the Dow Industrial Average. 

AND: Five of the 106 are part of the so-called Magnificent 7 group of tech or tech-related giants. Five report this week: 

MIcrosoft  (MSFT) – Get Free Report and Alphabet  (GOOGL) – Get Free Report, after Tuesday’s close.Amazon  (AMZN) – Get Free Report, Facebook-parent Meta Platforms  (META) – Get Free Report and Apple  (AAPL) – Get Free Report, after Thursday’s close.

Meta, helmed by Mark Zuckerberg, rose 194% in 2023, second in the Mag 7 to the 239% gain enjoyed by Nvidia  (NVDA) – Get Free Report. Meta now sports a market capitalization of about $1 trillion.

Part of Meta’s gain was a rebound from a 64% decline in 2022 plus a reward for shedding thousands of jobs.

And it is being rewarded for making huge investments in artificial intelligence applications.

Related: Mark Zuckerberg aims to compete with ChatGPT with latest move

The last generates two big questions for the company (and all the others): Are your AI investments paying off? If not, when?

So far, Meta investors seem willing to wait a while for the answer. Meta shares are up 11.4% so far in January, second in the Mag 7 after Nvidia’s 23.2%.

The questions may be a bit pointed in private, if not public, because Meta invested billions in the belief that it could develop a fantastic product in what Zuckerberg called the Metaverse. So far, it hasn’t caught on.

The Magnificent 7 represented about 27% of the total market capitalization of the S&P 500 at the end of 2023, with Microsoft and Apple accounting for 14% of the total. Their share is probably bigger now. 

Tesla’s share may be smaller because of its January drubbing. 

Chip-giant Nvidia  (NVDA) – Get Free Report is to report fourth-quarter results in late February. 

Where earnings stand overall 

 So far, according to FactSet, earnings of S&P 500 companies are a bit soft from a year ago, but only 25% of the companies have reported results. 

In addition to Tesla, there were disappointments last week from a number of well-known companies including Intel  (INTC) – Get Free Report, Netflix  (NFLX) – Get Free Report, Humana  (HUM) – Get Free Report, Norfolk Southern  (NSC) – Get Free Report, homebuilder D.R. Horton  (DHI) – Get Free Report, and Xerox Holdings  (XRX) – Get Free Report

Other companies will report this week, including: 

Whirlpool  (WHR) – Get Free Report, Monday.Advanced Micro Devices  (AMD) – Get Free Report, Pfizer  (PFE) – Get Free Report and Starbucks  (SBUX) – Get Free Report, Tuesday.MasterCard  (MA) – Get Free Report and insurance giant MetLife  (MET) – Get Free Report, Wednesday.Merck  (MRK) – Get Free Report and Honeywell International  (HON) – Get Free Report, Thursday

The jobs report may hint at a little weakness

The week’s second biggest economic event is the Labor Department’s report on  December jobs and unemployment. It’s due before markets open on Friday.

Economists see the unemployment rate at 3.7%, where it has been for some months. Nonfarm payroll growth may slip to as low as 162,000 from November’s 216,000 gain. 

These are strong numbers and have surprised just about everyone who watches them and are the key reason the United States did not fall into recession in 2023. 

But watch this: A number of companies, big and small, have been trimming staff in the last few months, and those cuts may start turning up in the revisions. 

Microsoft, for example said it was laying 1,900 people in connection with its recent acquisition of Activision. 

Oil prices: Starting to rise?

Oil giants Chevron  (CVX) – Get Free Report and Exxon Mobil  (XOM) – Get Free Report, will lead off the earnings reports for the energy sector on Friday. 

Chevron added nearly 5% this past week, while Exxon was up 2.6%. The S&P 500 energy sector was the week’s strongest.

The gains reflect rising crude oil prices since the start of the year. 

West Texas Intermediate, the benchmark U.S. crude, is up 8.88% to $78.01 a barrel this month — 6.5% just this week.

Prices are starting to move up in part because refiners starting to get ready for the summer driving season. But geopolitical issues also contributed with the ongoing tensions in the Middle East and the Ukraine-Russia War. 

Higher oil prices also mean you’re starting to see higher prices at the gas pump. The national average price of gasoline was at $3.103 a gallon on Saturday, according to AAA’s Daily Fuel Gauge. Gasbuddy was also at $3.10.

An important, under-the-radar event 

This is a bit esoteric, but it has the potential to make bond yields and interest rates bounce around wildly if not done correctly. 

On Wednesday, the Treasury Department will announce its plan to sell Treasury securities needed to keep the government running for the next three months.

The key to the plan is the right mix of short-term, medium-term and long-term securities.

In August, the plan had far too much allocated to longer-term securities. That slammed the bond market and sent the 10-year Treasury yield from about 4% to 5%. Mortgage rates topped 7%. 

Stocks tumbled in sympathy. (Stock and bond prices slide if bond yields and interest rates rise.)

The refunding plan announced in October changed the mix to a smaller portion of longer-term bonds and notes and short-term bills, according to the Wall Street Journal

Wall Street was thrilled. The 10-year yield fell back to 4%. Mortgage rates dropped, too.

The stock market’s October rally began soon after.

 

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