This is the conclusion of today's Morning Brief, which you can read Log in Delivered to your inbox every morning, along with:
The stock market's new record high will be challenged next week by a series of corporate earnings reports and a new reading of the Fed's preferred inflation gauge.
After most financial institutions finish reporting, technical results will take center stage, with Netflix (NFLX) earnings on Tuesday, followed by Tesla (TSLA) on Wednesday. Reports from Johnson and Johnson (JNJ), United Airlines (UAL), Verizon (VZ) and AT&T (ATT) also marked one of the busiest weeks of quarterly earnings on Wall Street.
In terms of economic data, the first reading of economic growth for the fourth quarter is expected on Thursday. Meanwhile, the latest release of the Personal Consumer Expenditures (PCE) Index, the Fed's preferred measure of inflation, is scheduled for Friday.
All of this will happen when stock prices are at or near their highest levels on record. The S&P 500 (^GSPC) closed at 4,839 on Friday, a new record high for the benchmark average. The Dow Jones Industrial Average (^DJI) also hit a new closing high of 37,863. Meanwhile, the technology sector was the big winner on Friday, with the Nasdaq Composite (^IXIC) rising 1.7%. All three major averages are now in positive territory for January.
Stocks' rise to new highs on Friday came as consumer sentiment data released by the University of Michigan showed consumers are doing best with the economy since July 2021.
Positive consumer sentiment fits with Wall Street economists' increasingly optimistic outlook as data continued to surprise on the upside in January.
Last week, a review of December retail sales showed that consumers ended 2023 better than many economists had feared. And while headlines about layoffs across various sectors have increased in recent weeks, the hard data measure of jobless claims recently hit its lowest weekly level since September 2022.
The story goes on
Analysts have the reliable data project The U.S. economy grew at an annual rate of 2% in the fourth quarter ahead of the preliminary gross domestic product release expected on Thursday.
Morning snapshot
The Oxford Economics team is increasingly confident that economic expansion will not stop in the coming year.
“The likelihood of a recession has fallen in recent months due to a strong labor market, slowing inflation and looser financial conditions due to the Fed's impending turn toward rate cuts,” Oxford Economics' Matthew Martin and Ryan Sweet wrote in a note to clients on Friday .
“[Oxford’s] The baseline forecast for January included an upward revision to GDP growth this year, a lower peak in the unemployment rate and higher consumer spending. Our subjective probability of a recession this year is now less than 50%.”
Beyond economic growth, the hottest debate on Wall Street remains when the Federal Reserve will cut interest rates.
As of Friday afternoon, investors estimate a 49 percent chance of a rate cut in March, according to the CME Fed Watch Tool. Just a week earlier, investors had estimated an 81 percent chance of a rate cut in March.
Many economists believe that the downward trend in inflation will be the deciding factor in determining when the Fed will make its first rate cut. Goldman Sachs chief economist Jan Hatzius expects the first cut to occur in March.
“The reason for the rate cuts in our forecast, and I would say what Chairman Powell said in the December press conference, is that inflation is coming back down to target,” Hatzius told Yahoo Finance Live. “If inflation falls back to target, there will most likely be interest rate cuts because the federal funds rate of 5.37% will just seem very, very high compared to an economy producing a 2% inflation rate. “
An update on the inflation story will come on Friday with the release of the December PCE index.
Economists expect an annual “core” PCE – which excludes the volatile food and energy categories was 3% in December. For the previous month, most economists expect a “core” PCE of 0.2%.
“The Fed's confidence that inflation will return to 2% should increase based on this report,” Bank of America U.S. economist Michael Gapen, who also expects the first cut in March, wrote in a note to clients Friday.
With the Fed in its lock-up period ahead of its next meeting on January 30, earnings are likely to be a key driver of stock market sentiment next week.
For Netflix, the focus will continue to be on how demand for its new advertising tier and crackdown on password sharing impact its future growth prospects. At Tesla, margins remain a key focus, while investors will also be paying close attention to comments from CEO Elon Musk, who is reportedly seeking greater control of the company.
Overall, given the average's outsized exposure to large-cap companies, the trajectory of technology earnings could provide an indication of where the market is headed in the near term.
“Technical exhibition “That earnings and the ability to grow earnings at a good pace even as we experience a slowdown in growth is very important to driving this market forward,” Lerner told Yahoo Finance on Wednesday ahead of the technology earnings, Truist Co-CIO said Keith Lerner told Yahoo Finance.
John Butters, senior earnings analyst at FactSet, stressed Friday that fourth-quarter earnings are currently off to a “weak start.” With 10% of S&P 500 companies having completed reporting, the index is currently trending toward a 1.7% decline in earnings per share.
However, Butters points out that this is largely due to the focus on financials in the first two weeks of the earnings call. In the coming weeks, the narrative will shift to technology and communications services, where earnings growth is expected compared to the same quarter last year.
Weekly calendar
Monday
Economic data: Leading index, December (-0.3%, expected, -0.5% previous)
Merits: United Airlines (UAL), Logitech (LOGI), Zions Bancorporation (ZION)
Tuesday
Economic data: Richmond Manufacturing Index, January (-6 expected, -11 expected)
Merits: 3M (MMM), Haliburton (HAL), Johnson and Johnson (JNJ), Lockheed Martin (LMT), Netflix (NFLX), Texas Instruments (TXN), Verizon (VZ),
Wednesday
Economic data: MBA mortgage applications, week ending Jan. 19 (+10.4% prior); S&P Global US Manufacturing PMI, January preliminary (47.6 expected, 47.9 previous); S&P Global US Services PMI January preliminary (51 expected, 51.4 previous); S&P Global US Services PMI January Composite (50.9 previous)
Merits: AT&T (ATT), Abbott (ABT), Freeport McMoran Copper and Gold (FCX), IBM (IBM), Las Vegas Sands (LVS) SAP (SAP), Tesla (TSLA)
Thursday
Economic data: Initial jobless claims, week ended (200,000 expected, 187,000 expected); Continuing Jobless Claims, Week Ended January 13 (1.84 million expected, 1.81 million previous); Fourth quarter GDP first estimate (+2.0% annualized expected, +4.9% previous); Personal consumption in the fourth quarter, first estimate (+2.2% expected on an annual basis; previously +3.1%); Q4 Core PCE Index (2.0% annualized expected, 2.0% prior); Wholesale Inventories Month, December Preliminary (-0.2% Expected, Previously -0.2%); Durable goods orders, December preliminary, (1.5% expected, 5.4% so far); New Home Sales, December (647,000 expected, 590,000 expected)
Merits: American Airlines (AAL), Alaska Airlines (ALK), Capital One (COP), Comcast (CMCSA), Dow (DOW), Humana (HUM), Intel (INTC), Levis (LEVI), Southwest (LUV), T -Mobile (TMUS), Union Pacific (UNP), Valero (VLO), Visa (V)
Friday
Business News: Personal income month-on-month, December (+0.3% expected, +0.4% so far); Personal spending month-on-month, December (+0.4% expected, +0.2% previous); PCE inflation month-on-month, December (+0.2% expected, -0.1% previous); PCE Inflation, YoY, December (+2.6% expected, +2.6% prior); “Core” PCE, month-on-month, December (+0.2% expected, +0.1% previous); “Core” PCE, YoY, December (+3.0% expected; +3.2% previous);
Merits: American Express (AXP), Colgate Palmolive (CL)
Josh Schafer is a reporter for Yahoo Finance.
Click here for the latest stock market news and in-depth analysis, including stock-moving events
Read the latest financial and business news from Yahoo Financ