Earnings + Fed Decision Could Be Breaking Point For Stocks

Author

Mark Roussin
January 30, 2023

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Market Talk ⏪

Stocks have been on FIRE to start 2023, which has been a nice relief for investors after a brutal year in 2022.

However, most can agree that it is not sustainable. An S&P 500 up 6% with the Nasdaq up 11% in one month is INSANE! Are we in the clear or is this yet again a bear market rally.

I hate to say or even ask it, but haven’t we been here before? The Fed remains steadfast on bringing inflation down and raising interest rates. Another decision looms this week with the overwhelming majority looking for just a 25 basis point hike. Some are looking for a more dovish (softer) tone from the Fed this week, but I still believe they stick to their guns and remain hawkish (strict), as they were late to the party and they do not want to be leaving to early.

Based on the CME Fed Tool, their forecast has the Fed pausing rate hikes sometime in either May or June, topping out around a 5% terminal rate.

Regardless, this is the BIGGEST week for investors as we have not only a Fed rate hike decision, but we also have roughly 20% of the S&P 500 reporting earnings this week. That amount of fresh information could result in a volatile week for investors.

If earnings and a Fed rate hike decision was not enough, let me also throw in some key economic data that will be reported this week including the January jobs report and the employment cost index.

The key to the rally in 2023 has been the beaten down growth stocks for the most part with value and dividend stocks taking a breather for the most part.

From a technical standpoint, the S&P 500 surpassed and held the 200 day moving average for the first time since spring of 2022. In addition, the index is looking to retest the December 2022 highs of $4,100, which will be a very key level of resistance. This is an inflection point where you can breakthrough the resistance and climb higher, or get rejected and fall back below $4,000. Apple, having the largest weighting within the S&P 500 will have a lot to say with how the week plays out.

From what we have seen, more than 60% of companies have beaten earnings thus far, but Q4 earnings is not as important as the guidance or lack thereof that we are seeing from companies. Take Microsoft for example which just reported some of its slowest revenue growth in years and that is expected to continue going forward, as they are looking for LOW single digit growth.

Intel reported some VERY weak earnings and weak guidance, as that company continues to be in a free fall, with investors wondering if current management has any idea on how to turn things around. Intel has been the most disappointing thus far.

To put this week into perspective using one word, it would be INFLECTION. The market is at an inflection point and investors should saddle up.

For me, I am going to remain defensive. The breather we have seen has given some opportunities to be had with some great dividend stocks, including the REIT sector for those of you looking for undervalued dividend stocks.

Best of luck to you this week, and if you have not already done so, please hit that LIKE button.

Deep Dive 📰

Become a premium subscriber today for ONLY $1 PER DAY. Premium subscribers receive the following:

  • Monthly Portfolio Updates

  • Earnings Recaps

  • 2 Individual Stock Deep Dives Per Month

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This week will be ANOTHER jam packed week of earnings summaries. The new Deep Dive is completed and will be published TUESDAY. Our latest Deep Dive was on Johnson & Johnson. Check it out here.

If there is a specific stock you would like me to consider for a future Deep Dive, then send me an email at [email protected] and I would be happy to consider it.

US Markets 🇺🇸

Here is a performance summary for US Equities:

Here is a look at US Treasuries:

The Fear & Greed Index measures market sentiment based on the following seven factors: put/call ratios, junk bond demand, stock price breadth, market volatility, stock price strength, safe-haven demand, and market momentum.

When it comes to the Fear and Greed Index, the stock market is off to a fast start, with every major index in the green to through the first month of the year. Given this, we have seen the Fear & Greed Index move further into the greed section, getting close to Extreme Greed levels. Currently, the index has a reading of 69, which is roughly flat from the prior week reading of 59.

Earnings on Deck 💰

We have now reached the BIGGEST week of earnings. At the conclusion of this week, we will have seen the majority of the S&P 500 report their latest earnings.

Notable Analyst Updates 📝

  • Barclays upgrades Qualcomm to overweight, raising PT to $150

  • UBS and Bank of America name Costco and Walmart as Top 2023 picks

  • Morgan Stanley names Apple as a top China reopening play

  • Jeffries names Caterpillar as a top pick

  • BMO downgrades Microsoft to market perform from outperform

  • Bank of America downgrades Union Pacific to neutral from buy

  • Goldman Sachs upgrades Philip Morris to buy from neutral

  • UBS downgrades Pfizer to neutral from buy

  • Deutsch ank downgrades Union Pacific to hold from buy and upgrades Norfolk Southern to buy from hold

  • UBS upgrades General Mills to buy from neutral

  • Cowen downgrades Northrop Grumman to market perform from outperform

This Week 📆

Monday

  • No economic data

Tuesday

  • FOMC meeting begins

  • Employment cost index (Q4)

  • S&P/Case-Shiller home prices (November)

  • FHFA home prices (November)

  • Chicago PMI (January)

  • Consumer confidence (January)

  • Housing vacancies (Q4)

Wednesday

  • Vehicle sales (January)

  • ADP employment (January)

  • S&P Global manufacturing PMI (January final)

  • ISM manufacturing (January)

  • Construction spending

  • FOMC statement

  • Fed Chair Jerome Powell briefing

Thursday

  • Initial jobless claims

  • Productivity and costs

  • Factory orders

Friday

  • Employment (January)

  • Global services PMI (January final)

  • ISM services (January)

Other Resources 📺

If you have not done so yet, definitely check out my growing YouTube community where I publish weekly videos on Dividend Stocks I am looking at.

Here is a look at my latest video in which I discuss how to earn a Dividend EVERY Month with a simple 3 stock strategy:

I also recently published a video titled 3 MUST OWN Dividend Stocks:

Here are a few others of my latest videos:

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Have questions? You can email me directly at [email protected].

Happy Investing!

Mark

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