The global business elite will gather this week in the mountains of Davos, Switzerland for the World Economic Forum, where a global economic slowdown, deglobalization and war in Ukraine will dominate talks while the world’s biggest stakeholders address the global outlook.
Back in the US, a holiday-shortened week will bring investors the government’s retail sales report, another notable inflation gauge and a big wave of corporate earnings from giants like Goldman Sachs (GS), Netflix (NFLX), Procter & Gamble (PG) and American Airlines (EEL).
US stock and bond markets will close on Monday, January 16 for Martin Luther King, Jr. Day.
A general view shows the Davos Congress Centre, venue of the World Economic Forum (WEF) 2023, in Alpenresort Davos, Switzerland January 14, 2023. Portal/Arnd Wiegmann
Davos resumes its regular program this week for the first time since 2020, after a scaled-down version of the normally busy January event that took place in May last year.
The prospect of a global recession, post-pandemic challenges, climate change and the crisis in Eastern Europe are high on the agenda for the politicians, CEOs and billionaires in attendance.
Despite economic concerns, US stocks started the year on an uptrend. On Friday, all three major averages ended their second consecutive week of gains.
The tech-heavy Nasdaq Composite posted a whopping 4.8% gain for the week, while the S&P 500 and Dow Jones Industrial Average posted their best performances since November, posting weekly gains of 2.7% and 2%, respectively.
However, the fourth quarter earnings season will be in full swing in the coming week and could test this rally.
Wall Street’s big banks set the tone with lackluster results that also showed they were hoarding cash for bad times in preparation for a potential downturn. And some CEOs warned about the economy.
“We still don’t know the ultimate impact of headwinds from geopolitical tensions, including the war in Ukraine, fragile energy and food supplies, persistent inflation and unprecedented quantitative tightening,” JPMorgan’s (JPM) Jamie Dimon said during a finding Phone call.
The story goes on
Other financial industry heavyweights are due to release fourth-quarter results Tuesday and Wednesday this week, including Goldman Sachs (GS), Wall Street’s leading investment bank – which reportedly laid off more than 3,000 employees last week – Morgan Stanley (MS), Interactive Brokers Group (IBKR) and Charles Schwab (SCHW).
Netflix’s results on Thursday will also be closely watched, with this quarterly update serving as a potential sign of upcoming tech sector earnings set to start in earnest the following week.
According to data from FactSet Research, the S&P 500 is expected to report a 3.9% year-over-year decline in earnings for the fourth quarter. It would be the first year-over-year earnings decline reported by the index since a 5.7% decline in the third quarter of 2020.
Goldman Sachs CEO David Solomon attends a session at the 50th meeting of the World Economic Forum (WEF) in Davos, Switzerland, January 21, 2020. Portal/Denis Balibouse
Jack Janasiewicz, senior portfolio strategist at Natixis Investment Managers Solutions, said in a note that the market appears to be split in two binary outcomes – earnings remain broadly flat or fall another 10-15% through the end of the year.
“While the consensus calls for a 2023 recession to be inevitable, let’s reflect on the old adage, ‘Never bet against the US consumer,'” said Janasiewicz. “We would add something else: ‘Never underestimate the resilience and flexibility of American companies.'”
“Companies are aggressively cutting costs to preserve margins,” he added. “If cost pressures ease and demand proves resilient, could this be the missing piece of the earnings puzzle leading to better-than-expected earnings per share?”
As for economic data, the US Census Bureau’s monthly retail sales data will provide a measure of how consumers fared during the all-important holiday shopping season in December. Economists polled by Bloomberg expect the headline to fall -0.9%.
Bank of America strategists attribute the expected slump to above-average holiday rebates, a continued return to services and a post-pandemic trend that has emerged for consumers to prioritize holiday spending.
“These factors, coupled with the acceleration in spending in the New Year and the resilience of lower-income consumers, suggest that investors should weather expected weakness in retail sales in December and await January data before drawing any firm conclusions on health of the US consumer,” said BofA.
Elsewhere in economic news, the Producer Price Index (PPI) will give investors a look at wholesale-level inflation after last week’s Consumer Price Index (CPI) came in at a cooler 6.5%.
Economists polled by Bloomberg expect the headline PPI to rise at an annual rate of 6.8% in December, up from 7.4% in the previous month. And the PPI excluding food and energy rose 5.5% for the year, also decelerating from 6.2% in November.
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economic calendar
Monday: No significant reports planned for publication. Markets closed for Martin Luther King, Jr. Day.
Tuesday: Empire manufactureNovember (-8.6 expected, -11.2 last month)
Wednesday: MBA Mortgage Applicationsweek ended January 13 (1.2% in previous week); Operations of the New York Fed ServicesJanuary (-17.5 in the previous month); Sales advance in retailMoM, December (-0.9% exp., -0.6% MoM); Retail sales excluding carsMoM, December (-0.5% exp., -0.2% MoM); Retail sales excluding cars and gasolineMoM, December (-0.2% exp., -0.2% mom); retail sales control groupDecember (-0.4% expected, -0.2% mom); Final PPI demandMoM, December (-0.1% exp., 0.3% mom); PPI without food and energyMoM, December (0.1% exp., 0.4% mom); PPI excluding food, energy and tradeMoM, December (0.2% exp., 0.3% mom); Final PPI demandYoY, December (6.8% expected, 7.4% mom); PPI without food and energyYoY, December (5.5% expected, 6.2% mom); PPI excluding food, energy and tradeYoY, December (4.6% expected, 4.9% mom); industrial productionMoM, December (-0.1% exp., -0.2% mom); Manufacturing (SIC) ProductionDecember (-0.2% expected, -0.6% mom); capacity utilizationDecember (79.6% expected, 79.7% mom); business suppliesNovember (0.4% expected, 0.3% mom); NAHB housing market indexJanuary (31 expected, 31 last month); Federal Reserve publishes Beige Book; Long-term TIC net flowsNovember ($67.8 billion); Total net TIC flowsNovember ($179.9 billion)
Thursday: building permitDecember (1.370m expected, 1.342m in previous month, revised to 1.351m); building permitmonth-on-month, December (1.4% expected, -11.2% mom, revised to -10.6%); living beginsDecember (1357 million expected, 1.427 in previous month); living beginsMoM, December (-4.9% exp., -0.5% MoM); Philadelphia Fed Business Outlook IndexJanuary (-11.0 expected, -13.8 last month, revised to -13.7); Initial jobless claimsWeek ended Jan 14 (214k expected, 205k last week); Ongoing ClaimsWeek ending January 7 (1.655 million expected, 1.634 million last week)
Friday: Sale of existing homesDecember (3.95 million expected, 4.09 million last month); Sale of existing homesMoM, December (-3.4% expected, -7.7% mom)
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results calendar
Monday: No significant reports planned for publication. Markets closed for Martin Luther King, Jr. Day.
Tuesday: Goldman Sachs (GS), Morgan Stanley (MS), Interactive Brokers Group (IBKR), Signature Bank (SBNY), Pinnacle Financial Partners (PNFP), Old National Bancorp (ONB), Hancock Whitney Corp. (HWC), Citizens Financial Group (CFG), United Airlines (UAL)
Wednesday: Charles Schwab (SCHW), Discover Financial Services (DFS), PNC Financial Services (PNC), Kinder Morgan (KMI), JB Hunt Transport Services (JBHT), First Horizon Corp. (FHN), Alcoa (AA), Wintrust Financial (WTFC), HB Fuller Company (FUL), Prologis (PLD)
Thursday: Netflix (NFLX), Procter & Gamble (PG), American Airlines (AAL), Comerica Inc. (CMA), Truist Financial Corp. (TFC), PPG Industries Inc. (PPG), Fastenal Company (FAST), M&T Bank (MTB), Fifth Third Bancorp (FITB), Northern Trust Corporation (NTRS), KeyCorp (KEY), SVB Financial Group (SIVB)
Friday: Ally Financial (ALLY), Schlumberger (SLB), State Street Corp. (STT), Huntington Bancshares Inc. (HBAN), Regions Financial Corp. (RF), Ericsson (ERIC)
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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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