Earnings Season to Drive S&P 500 In the Next Month
January 17 2023 - 6:29AM
Finscreener.org
U.S. equity markets regained
momentum in the first two weeks of 2023. The tech-heavy
Nasdaq Composite Index is up 6.7%, while the
S&P 500 index has
gained 4.6% year-to-date. In this week, which is a shortened one,
investors can expect earnings to drive the markets as several
financial giants such as Morgan Stanley
(NYSE: MS), Goldman Sachs
(NYSE:
GS), PNC
Financial Services Group (NYSE:
PNC), and Discover Financial
Services (NYSE:DFC)
will report Q4
earnings.
Additionally companies,
including United Airlines (NASDAQ:
UAL), American Airlines
(NASDAQ:
AAL), and Netflix (NASDAQ: NFLX), will also report their quarterly results for the
period that ended in December.
The U.S. Treasury Secretary,
Janet Yellen, warned the country’s statutory debt limit could be
breached next week, indicating the Democrats are likely to raise or
suspend the debt ceiling. Federal lawmakers last raised the debt
ceiling in December 2021 to $31.4 trillion. Yellen emphasized that
Congress will take the required measures to prevent a sovereign
debt default.
Big banks will be under focus
Morgan Stanley is expected to
announce adjusted earnings of $1.25 per share in Q4, a decline of
40% year over year. Further, revenue is forecast at $12.17 billion,
a decline of 16.2% year over year.
The last year has seen several
banks and financial institutions struggle with challenging
macroeconomic conditions ranging from rising interest rates and
inflation to geopolitical tensions and supply chain
disruptions.
A rising interest rate
environment results in lower demand for loans across business
verticals and also increases the probability of default. Further, a
bearish macro environment has driven down revenue from investment
banking, which is a high-margin business for banks.
Fees generated from global
investment banking declined by 40% in the first three quarters to
$77 billion, compared to the $132 billion figure in the same period
in 2021.
Goldman Sachs recently announced
plans to reduce its workforce by 3,200 employees and is forecast to
report adjusted earnings of $5.25 per share, compared to earnings
of $10.81 per share in the year-ago period.
Retail sales and PPI
The U.S. Census Bureau will
report retail sales for the month of December, providing market
participants with insights on consumer spending during the holiday
season. Retail sales are expected to decline 0.5% in December,
following a 0.6% fall in November.
A report from Investopedia
states, “Despite record-breaking online sales early in the holiday
shopping season, sales are anticipated to have underperformed last
month as a combination of high inflation, rising interest rates,
and the drawdown of household savings from early in the pandemic
affected spending.”
Finally, the Bureau of Labor
Statistics (BLS) will release the PPI or Producer Price Index on
Wednesday for the month of December. The PPI tracks inflation from
the view of manufacturers and wholesalers.
The BLS expects producer
inflation to flatline in December after it rose 0.3% in the prior
three months. On a year-over-year basis, price growth is expected
to rise 7% in December, compared to a gain of 7.4% in November and
much lower than its 11.7% growth in March 2022.
Core prices which exclude food
and energy costs, are projected to surge by 0.1%, while annual
growth might fall below 6% for the first time since June
2021.
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