Earnings season kicks into high gear in the coming week, with the financial sector, particularly in focus. Earnings results will test growth stocks just as investors are bracing for the Federal Reserve to begin hiking interest rates. The Bank of Japan is to meet, and the European Central Bank publishes minutes. The U.S. economic calendar is light in a holiday-shortened week, with U.S. markets closed Monday for Martin Luther King Jr. Day. Meanwhile, GDP data out of China on Monday could fuel speculation over monetary easing. Here’s what you need to know to start your week.
Earnings
Financial sector earnings during the week will include fourth-quarter results from Goldman Sachs (NYSE:GS), Charles Schwab (NYSE:SCHW) and BNY Mellon (NYSE:BK) on Tuesday, followed by Morgan Stanley (NYSE:MS) and Bank of America (NYSE:BAC) on Wednesday.
Big non-financial firms reporting include Procter & Gamble (NYSE:PG) on Wednesday and Netflix (NASDAQ:NFLX) on Thursday, the first of the closely watched “FAANG” companies to do so. Investors will be paying close attention to the streaming giant’s plans for new content and its outlook for subscribers.
The Dow ended lower on Friday, dragged down by declines in major banks, including JPMorgan Chase & Co. (NYSE:JPM) and Citigroup (NYSE:C), after earnings results raised worries over a decline in trading revenues and loan growth.
Bank executives are expected to be upbeat on the outlook, but as some analysts have noted, bank stocks often do better ahead of rate hikes than they do during rate increases.
Test for growth stocks?
U.S. tech and growth stocks have got off to a rough start in 2022, raising the stakes for this earnings season, as investors look for reasons to remain steadfast ahead of expected rate hikes by the Fed.
Tech bulls hope a strong earnings season can reverse declines driven by rising Treasury yields and expectations that the Fed will tighten monetary policy and hike rates aggressively to fight inflation.
As the Fed increases short-term rates, investors will keep an eye on how high longer-term U.S. Treasury yields rise. Higher yields mean a greater discount on future profits, a negative for growth stocks.
“Given the performance of these tech names here recently, will earnings be a saviour for them?” Walter Todd, chief investment officer at Greenwood Capital told Reuters. “Over the next month, seeing how some of these tech names respond to their numbers … will be interesting.”
Central banks
The BoJ is set to keep policy on hold and revise up its inflation forecast at the conclusion of its two-day monetary policy meeting on Tuesday. While inflation remains well below the bank’s 2% target, a recent spike in global commodity costs prompted more companies to increase prices.
The ECB is to publish the minutes of its December meeting, when it extended stimulus measures, on Thursday amid an ongoing debate over how best to counter rising price pressures in the bloc.
Meanwhile, the Fed enters its traditional quiet period ahead of its upcoming policy meeting on Jan. 24-25.
U.S. data
It’s set to be a light week on the U.S. economic calendar, with updates on the housing sector and regional manufacturing surveys in a holiday-shortened week.
The Empire State Manufacturing index is due on Tuesday, followed by data on building permits and housing starts on Wednesday. Thursday brings the Philly Fed manufacturing index, along with updates on initial jobless claims and existing home sales.
The manufacturing surveys should show how much impact the wave of the Omicron variant has had on factory activity, while the housing data is expected to remain solid. None of the data is likely to significantly alter market expectations for a March Fed rate hike.
Chinese GDP
Data on Monday is expected to show China’s economy grew by an annualized 3.6% in the fourth quarter – the slowest rate since the second quarter of 2020, pressured by a downturn in the property sector, curbs on debt and strict Covid-19 measures.
The world’s second-largest economy is facing multiple headwinds in 2022, including persistent weakness in the property sector and fresh restrictions on movement amid the recent local spread of the Omicron variant.
The gloomy economic outlook may add to pressure on policymakers to roll out more easing steps, though analysts believe they will likely favour injecting more cash into the economy rather than cutting interest rates too aggressively.
On Sunday, China’s state planner called on local governments to minimize the impact of COVID-19 restrictions over the upcoming Lunar New Year holiday to help a rebound in consumption.
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