Big Bank Earnings to Drive S&P 500 This Week
09 Janeiro 2023 - 06:45AM
Finscreener.org
Most equity indices gained pace
on Friday on the back of the latest nonfarm payrolls data, which
indicated a deceleration in wage growth for the month of December.
It basically indicates that quantitative tightening measures
employed by the Federal Reserve to tame inflation is now bearing
fruit.
In the last week ended on January
6, the
S&P 500 and Dow
Jones indices gained 1.5% while the tech-heavy Nasdaq index rose 1%. The 10-year Treasury note fell 30 basis
points last week and traded below 3.6%. The yield curve remains
inverted, and the 2-year note now yields 4.3%.
Crude oil prices fell 7% last
week due to a surge in COVID-19 cases in China, which could lower
manufacturing output in the country, clouding the outlook for
robust global demand. The price of WTI (West Texas Intermediate
moved towards a three-week low of $73 per barrel.
What will drive the S&P 500 index this
week
While macroeconomic challenges
continue to weigh heavily on investor sentiment, Wall Street will
be closely watching quarterly reports as the earnings will heat up.
Big banks, including JPMorgan (NYSE:
JPM), Bank
of America (NYSE:
BAC),
Wells Fargo (NYSE:
WFC),
Citigroup (NYSE: C), and Blackrock
(NYSE: BLK), are scheduled to report Q4 earnings on
Friday.
It will be interesting to see the
impacts of rising interest rates on the financials of these banking
giants. Demand for loans across verticals such as consumer,
mortgage, and corporate is expected to decline significantly.
Further, revenue and fees generated from the investment banking
division will also remain under pressure.
However, banks may also benefit
from higher interest rates as net interest margins are likely to
expand. Basically, the net interest margin is the difference
between interest income and interest payments.
The Consumer Price Index data is key
The Bureau of Labor Statistics
will release data for the Consumer Price Index (CPI) for December
on Friday, providing market participants with an update on consumer
inflation in the country. Prices are expected to rise 6.5% year
over year in December and 0.1% compared to the last month. The CPI
surged to a 40-year high of 9.1% in June 2022. In case the CPI
increases by less than 6.5%, it will be the slowest inflation rate
(on an annual basis) since October 2021.
A deceleration in inflation rates
would mean the Federal Reserve might consider an easing of monetary
tightening measures in the second half of 2023.
Earnings remain key for stock market
investors
In addition to the big banks,
companies such as Taiwan Semiconductor Manufacturing
Company (NYSE:
TSM), UnitedHealth
(NYSE:
UNH), and Delta Air Lines
(NYSE:
DAL) will report Q4 earnings this week. The
S&P 500 and several other indices remain quite volatile
during earnings season as companies provide a peek into the future
with revenue and earnings forecasts.
It will be interesting to see how
corporates navigate an environment of rising bond yields, high
commodity prices, and the possibility of an economic
recession.
In Q4 of 2022, companies part of
the S&P 500 are expected to see a 4.1% decline in earnings,
year over year, according to data from FactSet. It will the first
annual decline in the bottom line since Q3 of 2020 when earnings
fell 5.7% year over year.
A report from Investopedia
suggests, “Of the companies issuing EPS guidance, 65 have issued negative guidance while just 35
have issued positive guidance. Analysts’ estimates for earnings
growth have been downgraded steeply in recent months. In late
September, the median projection for fourth quarter earnings growth
stood at 3.5%.”
BlackRock (NYSE:BLK)
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