The Week Ahead – January 30, 2023

The Week

The week ahead includes the FOMC meeting, a key OPEC gathering, and a variety of earnings reports.

The Federal Reserve is largely anticipated to produce a 25-point rate hike to take the target federal funds rate to 4.50% to 4.75%. The consensus view is that the Fed will continue with its tightening policy and signal more rate hikes are still in the mix.Transitory elements of inflation have come down, but the underlying problem of excessive stimulus remains.

OPEC oil ministers will meet online during the week to review levels of output. The Joint Ministerial Monitoring Committee of OPEC+ is expected to endorse the current oil output policy of the group.

The unemployment report at the end of the week is expected to show a rise in nonfarm payrolls of 225K with the end of a strike by University of California workers in late December a positive factor.

Private payrolls are forecast to rise by 200K following a 220k increase in December.

Earnings slate includes reports from tech heavyweights Amazon (AMZN), Apple (AAPL), Alphabet (GOOG), and Meta Platforms (META).

Investors are looking to see the focus return back to growth after recession worries, high-profile job layoffs and supply chain snarls dented sentiment. Other big reports include the quarterly updates from Exxon Mobil (XOM), Starbucks (SBUX), and Merck (MRK).

After a bleak 2022, the S&P 500 is on track for a strong January. The index rose 2.5% last week, and has gained 6% year-to-date. Falling inflation and relatively resilient economic data have boosted hopes of a “soft-ish” landing for the US economy. The Federal Reserve looks set to slow the pace of rate hikes further at its policy meeting this week, to 25 basis points (bps) from 50bps in December.

But despite the solid start to the year, uncertainty about the outlook for growth and inflation remains high

Earnings

Monday, January 30 – NXP Semiconductors (NXPI) and Whirlpool (NYSE:WHR).

Tuesday, January 31 – Exxon Mobil (XOM), General Motors (GM), UPS (UPS), Pfizer (PFE), Caterpillar (CAT), McDonald’s (MCD), Amgen (AMGN), AMD (AMD), Electronic Arts (EA), and UBS (UBS)

Wednesday, February 1 – AmerisourceBergen (ABC), Altria (MO), Peloton Interactive (PTON), and Meta Platforms (META).

Thursday, February 2 – ConocoPhillips (COP), Merck (MRK), Eli Lilly (LLY), Amazon (AMZN), Apple (AAPL), Alphabet (GOOG), Starbucks (SBUX), Ford Motor (F), and Qualcomm (QCOM).

Friday, February 3 – Cigna (NYSE:CI), Regeneron Pharmaceuticals (REGN), and Church & Dwight (NYSE:CHD).

Volatility

Upstart Holdings (UPST) and Root (ROOT) are positioned for a volatile week with short interest at a very high level. Opendoor Technologies (OPEN) is on the list of stocks with the highest implied volatility based on options trading. Bed Bath & Beyond (NASDAQ:BBBY) is still a highly-shorted battleground stock even as bankruptcy odds increase.

Barron’s

Lowe’s (LOW) landed a surprise callout this weekend amid growing concerns on the housing market and the impact of a potential recession in the U.S. The publication pointed out that the home improvement retailer has a plan to minimize the damage by cutting advertising expenses and delaying some longer-term projects. By Barron’s calculations, even if sales drop to $87B for Lowe’s this year in a worst-case scenario, margins would come in at 13.3% vs. 12.9% in 2022. EPS is seen being on a reasonable path to $20 a year by 2026 to represent roughly 10% compound annual growth rate from last year’s mark. The main takeaway is that the current share prices offer long-term investors a compelling entry point with the stock trading at a discount to both rival Home Depot and the S&P 500 index.

Summary – Last Week

Stocks are down this morning after a winning week following data that pointed to stronger than expected U.S. economic growth.

Tesla shares climbed 33% last week on the week after reporting record quarterly revenue.

We expect continued volatility around TSLA this year.

The Commerce Department reported last week that the personal consumption expenditures price index (excluding energy and food) showed prices rose 4.4% from a year earlier. This came on the heels of reporting a better than expected 2.9% gain in GDP for the fourth quarter.

At the same time, durable goods orders for December came in at 5.6%, above the expected 2.5% level, while weekly initial jobless claims hit a 9-month low with claims falling 6K to 186K. 

Market participants continue to hope that the Federal Reserve may manage a soft landing.

All the major market averages finished higher for the week, with the Nasdaq Composite climbing 4.3% to rack up a fourth straight week of gains, while the S&P 500 gained 2.4% and the Dow Jones average ended up 1.8%.