Earnings to test market rally: What to know this week

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Economic data releases and earnings

Stocks are back near record highs with the S&P 500 finishing Friday at 4,959, its highest close ever. All three major indexes logged gains for the week, surviving a tumultuous week of trading.

Stocks initially slid following lackluster tech results from Microsoft (MSFT) and Alphabet (GOOG, GOOGL), and sold off further on Wednesday when Fed Chair Jerome Powell said an interest rate cut in March is not the “base case.”

But blowout earnings from Meta (META) and Amazon (AMZN), combined with a stronger-than-expected January jobs report, sent stocks into rally mode.

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

A slew of corporate earnings including reports from Eli Lily (LLY), Disney (DIS), Spotify (SPOT), McDonald’s (MCD), Chipotle (CMG), and Pepsi (PEP) will greet investors in the week ahead amid a light economic schedule.

The rate cut debate rolls on

Federal Reserve Chair Jerome Powell poured cold water on investor hopes for a March interest rate cut during his press conference following the January Fed meeting. Powell said the central bank needs “greater confidence” in inflation’s path lower before cutting rates.

Economists believe the January jobs report, which showed the US economy added 353,000 jobs in the month, bolsters the Fed’s case it can wait to cut interest rates without pushing the economy into recession. But the report also brought forth concerns about inflation reaccelerating, as wages increased 4.6% in the month, the highest pace of growth since July 2023.

“After the FOMC meeting on Wednesday, we maintained confidence in our expectation of a March rate cut,” Jefferies US economist Thomas Simons wrote in a note to clients on Friday. “After today’s data, however, it is hard to see how that is going to happen. Barring a significant turnaround in the February data, or very weak inflation data between now and mid-March, it is much more likely that the FOMC will hold policy rates steady in March.”

Investors are now placing a roughly 20% chance on an interest rate cut at the March meeting, per the CME FedWatch Tool. On Thursday, there had been a nearly 40% chance and a month ago nearly an 80% chance.

Earnings check-in

Corporate earnings appeared to round a corner to end last week. After S&P 500 earnings had been posting a more than 1% decline for the quarter, a swath of earnings in the past week flipped the narrative headline with earnings beats from tech stalwarts Apple, Meta, Alphabet, Amazon, and Microsoft, per FactSet.

The latest data from FactSet shows earnings are expected to grow 1.6% in the fourth quarter. And notably, estimates for the first quarter have been kept in check too. In the past month analysts have trimmed first quarter earnings estimates by 1.4%, less than the five-year average of a 2.1% cut.

104 S&P 500 companies are slated to report earnings this week, per FactSet.

Mainly quiet on the economic front

After an onslaught of economic data that’s showed the US economy is off to a hot start to the first quarter, investors will have few data points to dissect in the week ahead. Weekly initial jobless claims will continue to be closely tracked as companies announce layoffs while an update on activity in the services sector on Monday will catch investor attention.

ORLANDO, FLORIDA - FEBRUARY 01: A sign welcomes visitors near an entrance to Walt Disney World on February 01, 2024, in Orlando, Florida. A federal judge has dismissed a lawsuit against Florida Gov. Ron DeSantis, which Walt Disney Co. said it will be appealing its loss in a lawsuit. The case revolves around the Governor taking over Disney's special governing district after Disney opposed Florida legislation that critics have dubbed “Don’t Say Gay.” (Photo by Joe Raedle/Getty Images) — A sign welcomes visitors near an entrance to Walt Disney World on Feb. 1, 2024, in Orlando, Fla. (Joe Raedle/Getty Images) (Joe Raedle via Getty Images)

Weekly Calendar

Monday

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

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 expected, 50.5 prior)

Tuesday

Earnings: Amgen (AMGN), Chipotle (CMG), e.l.f. Beauty (ELF ), Eli Lilly (LLY), Spotify (SPOT), Fiserv (FI), Ford (F), Hertz (HTZ), BP (BP), Snap (SNAP), Toyota (TM)

No notable economic news.

Wednesday

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

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

Thursday

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

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