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Stocks have mostly recovered after markets fell on Tuesday's better-than-expected inflation report.
For the week, the S&P 500 (^GSPC) closed 0.4% lower, but set a new all-time high at Thursday's close. The Dow Jones Industrial Average (^DJI) fell 0.1% for the week. Meanwhile, the Nasdaq Composite Index (^IXIC) fell by 1.3%.
The market will be closed on Monday for President's Day.
With few economic events expected to shake up investor sentiment on the calendar, all eyes will be on next week's earnings report from AI darling Nvidia, which will be released after the market closes on Wednesday. Reports from Walmart (WMT), Home Depot (HD), Moderna (MRNA), and Warner Bros. Discovery (WBD) will also be of interest this week.
Temporary changes in the economic story
Economic consensus is growing, but the path faces challenges.
Over the past few months, a flurry of better-than-expected data had many investors accepting the possibility of a soft landing, with inflation falling to the Federal Reserve's 2% target without a serious economic downturn.
Recent data over the past week casts doubt on that theory. The Consumer Price Index (CPI) and Producer Price Index (PPI) both showed that prices rose faster than economists expected last month. And January's retail sales report showed sales fell more than economists expected.In other words, there will be no inflation or consumer spending. Improved.
“January data is noisy, but inflation data shows that disinflation returned two steps in January,” Bank of America U.S. economists Stephen Juneau and Michael Geipen said in a note to clients on Friday. It suggests that.”
Juneau and Gapen said January's inflation data confirms the Fed's “wait-and-see” stance on rate cuts, adding to the emerging market consensus that the first rate cut will be in June rather than March or May. I wrote that I agree.
read more: Impact of Fed interest rate decisions on bank accounts, CDs, loans, and credit cards
This shows a major shift in investor sentiment regarding the Fed's interest rate cuts. Investors are currently pricing in a roughly 35% chance of the first rate cut coming in May, according to the CME FedWatch tool. A month ago, investors were pegging a 97% chance of the first rate cut by the end of the May meeting.
Nvidia takes center stage
Perhaps the most important earnings report of the fourth quarter reporting season is scheduled to be taped after the closing bell on Wednesday. The chipmaker is leading in his AI space, pushing it to his third-highest market capitalization in the world, behind Apple (AAPL) and Microsoft (MSFT).
Since last May, when Nvidia released a dramatic earnings report that beat Wall Street's earnings estimates by more than 50%, the company has consistently outperformed analysts' expectations. And many on Wall Street are predicting another devastating quarter. Consensus predicts that NVIDIA will report earnings of $4.60 per share and revenue of $20.36 billion. This would represent year-over-year growth of 422% and 236%, respectively.
With the stock already up nearly 50% this year, the risk for investors is whether the company's strong run finally ends. It could also pose a risk to the broader market, given Nvidia's weight in major indexes and its AI-related value.
Steve Sosnick, chief strategist at Interactive Brokers, told Yahoo Finance's Madison Mills that the report could be “very difficult” for the market.
“If Nvidia misses or misses a home run, that could have a gravitational effect on the overall market,” Sosnick said.
The market story has not changed yet
Nvidia's results are a reminder that the overall market story has changed little in recent weeks, although a recent set of economic indicators has posed some challenges to the soft landing story. Stock markets endured disappointing news, with the S&P 500 hitting new highs even as investor expectations shifted from a cycle of interest rate cuts starting in March to one starting in June.
AI stocks are still soaring as enthusiasm for the new technology remains strong (see Super Microcomputer (SMCI)'s 150% rise in one month for the latest example). And if you look beneath the surface, you'll see that the stock's fundamental story is also holding up.
Nearly 80% of S&P 500 companies have reported earnings, and the index is on pace for 3.2% profit growth in the fourth quarter, according to the latest FactSet data released Friday. This number has steadily increased in recent weeks as more companies report.
As we've noted, the drop in earnings is also felt across sectors, and many believe this could extend market returns beyond a few top tech stocks later this year. people are thinking. A recent study by Keith Lerner, co-CIO at Truist, points out: The market's most recent bottom was in late October, but expansion is underway.
“The market rally we have seen since October has been more widespread than many investors believe,” Lerner said in a note to clients Thursday night.
This was also the case for the equal-weighted S&P 500 Index (RSP) and small-cap Russell 2000 Index (^RUT) over the past week. These two indexes are often referenced by market strategists who believe the stock market rally will extend beyond this year. Few stocks are leading the way right now. Both rose by more than 0.7%. The S&P 500 fell about 0.4%.
These signs of market change come after Neil Dutta, head of economics at Renaissance Macro, noted several times this week that the market's soft-landing story is still playing out. And the main reason for that, Datta added, is that the macro conversation hasn't changed.
“The economy is growing reasonably well and there is still talk that the central bank is considering when to cut interest rates,” Dutta said. “Policy readjustments remain likely this year.”
weekly calendar
Monday
The market is closed for President's Day.
Tuesday
Revenue: Barclays (BCS), Caesars Entertainment (CZR), Diamondback Energy (FANG), Home Depot (HD), KBR (KBR), Medtronic (MDT), Palo Alto Networks (PANW), Teladoc Health (TDOC); Toll Brothers (TOL), Walmart (WMT)
Economic News: Philadelphia Fed Nonmanufacturing Activity, February (previously -3.7). Leading index, January (forecast -0.3%, previous -0.1%)
Wednesday
Revenue: Nvidia (NVDA), DutchBros (BROS), Etsy (ETSY), HSBC (HSBC), Lucid (LCID), Marathon Oil (MRO), Rivian (RIVN), Suncor Energy (SU), Wingstop (WING)
Economic News: MBA Home Loan Applications, February 16 (previously down 2.3%). FOMC Minutes of January 31st
Thursday
Revenue: Booking Holdings (BKNG), Block (SQ), Carvana (CVNA), Intuit (INTU), LiveNation (LYV), Moderna (MRNA), Nikola (NKLA), Wayfair (W)
Economic News: Chicago Fed Nat Activity Index for January (previously -0.15). Number of new unemployment insurance claims for the week ending February 17th (previously 212,000). S&P Global US Manufacturing PMI, preliminary figures for February (forecast 50.1, previous 50.7). S&P Global US Services PMI, preliminary figure for February (expected 52.0, previous 52.5). S&P Global US Composite PMI, February preliminary value (52.0). January existing home sales month-on-month change (expected 5.0%, -1% last time)
Friday
Revenue: Lamar (LAMR), Warner Bros. Discovery (WBD)
There is no notable economic news.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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