Markets Await US Inflation Data and the Start of the Earnings Season | Daily Market Analysis

Key events:      

• USA – Core CPI (MoM) (Dec)  
• USA – CPI (YoY) (Dec)  
• USA – CPI (MoM) (Dec)  
• USA – Initial Jobless Claims

In his speech, Fed Chairman Jerome Powell bypassed economic and monetary policy issues, limiting himself to a couple of general phrases. And now investors are waiting for the key event of the week - today's release of the US consumer inflation data for December, which the consensus forecast suggests slowed to 6.5% y/y from 7.1% y/y. This will be the last bundle of key macroeconomic data the Fed will receive before its rate decision on February 1. The federal funds rate futures market is pricing in a 79 percent chance of a 25bp hike and a 21 percent chance of a 50bp move.

Another key factor for the U.S. stock market at least in the coming weeks will be the beginning of the fourth-quarter earnings season. JPMorgan Chase (NYSE: JPM), Bank of America (NYSE: BAC), Citigroup (NYSE: C), and Wells Fargo (NYSE: WFC), among others, will all release their latest financial results.

Investors are preparing for apparently the worst reporting season in more than two years amid a toxic combination of several macroeconomic issues, including rising interest rates, persistently high inflation, slowing economic growth, and lingering supply chain and labor shortages.

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According to FactSet, analysts forecast a 4.1% year-over-year (y/y) decline in fourth-quarter earnings for S&P 500 companies. This corresponds to the sharpest year-over-year decline since the third quarter of 2020 when the economy suffered the effects of lockdowns due to the coronavirus.

Revenue projections are also worrisome, with sales growth expected to be just 3.8% y/y. According to FactSet, this corresponds to the lowest year-over-year revenue growth rate since the fourth quarter of 2020.

When it comes to individual companies, we can`t but mention ExxonMobil (NYSE: XOM), which is expected to report a 60.5% increase in earnings per share, from $2.05 to $3.29, and Chevron (NYSE: CVX), which is expected to grow earnings per share by 73.4% y/y to $4.44, also appear to report significant improvement in its fourth-quarter results.

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In addition to earnings and revenue numbers, we recommend keeping a close eye on companies' outlook for the coming months given the uncertain macroeconomic outlook, particularly the heightened recession fears.

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The continued strength of the U.S. dollar will play an important role as it creates significant headwinds for companies whose revenues depend on international markets, primarily from the information technology, materials, and communications services sectors.